0001556593nrz:HeldthroughEquityMethodInvesteesMemberus-gaap:MeasurementInputMaturityMembernrz:OriginalPoolsMemberus-gaap:AgencySecuritiesMembersrt:MaximumMember2021-01-012021-09-30



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
2021
or
¨☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to________________
 
Commission File Number: 001-35777
New Residential Investment Corp.
(Exact name of registrant as specified in its charter)
Delaware45-3449660
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
1345 Avenue of the AmericasNew York NYNY10105
(Address of principal executive offices)(Zip Code)
(212)798-3150
(212) 798-3150
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:Name of each exchange on which registered:
Common Stock, $0.01 par value per shareNRZNew York Stock Exchange
7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNRZ PR ANew York Stock Exchange
7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNRZ PR BNew York Stock Exchange
6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNRZ PR CNew York Stock Exchange
7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred StockNRZ PR DNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒    No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationsRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒    No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x  Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) 
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company ☐Emerging growth company ☐
Smaller reporting company ¨     Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐    No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 307,361,309466,579,920 shares outstanding as of October 26, 2017.

29, 2021.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS SUMMARY

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, our financing needs and the size and attractiveness of market opportunities. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations, cash flows or financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain.limited. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect

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

•the uncertainty and economic impact of the ongoing coronavirus (“COVID-19”) pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties, as well as the ultimate impact on us, our operations and future prospects include, but are not limited to:personnel;
•our exposure to risks of loss resulting from adverse weather conditions, man-made or natural disasters, the effect of climate change, and pandemics, such as the COVID-19 pandemic;
reductions in cash flows received from our investments;
the quality and size of the investment pipeline and •our ability to take advantage ofsuccessfully execute our business and investment opportunities at attractive risk-adjusted prices;strategy;
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 investment in Servicer Advance Investments and servicer advances receivable;
•our ability to deploy capital accretively and the timing of such deployment;
•reductions in the value of, cash flows received from, or liquidity surrounding, our investments, which are based on various assumptions that could differ materially from actual results;
•our reliance on, and counterparty concentration and default risks in, Nationstar, Ocwen, OneMain, Ditech, PHHthe servicers and subservicers we engage (“Servicing Partners”) and other third parties;
events, conditions•the impact of current or actions that might occur at Nationstar, Ocwen, OneMain, Ditech, PHHfuture legal proceedings and regulatory investigations and inquiries involving us, our Servicing Partners or other business partners;
•the mortgage lending and servicing-related regulations promulgated by the Consumer Financial Protection Bureau (“CFPB”) and its enforcement of such regulations;

•the risks related to our origination and servicing operations, including, but not limited to, compliance with applicable laws, regulations and other third parties,requirements, significant increases in delinquencies for the loans, compliance with the terms of related servicing agreements, financing related servicer advances and the origination business, expenses related to servicing high risk loans, unrecovered or delayed recovery of servicing advances, foreclosure rates, servicer ratings, and termination of government mortgage refinancing programs;
•our ability to obtain and maintain financing arrangements on terms favorable to us or at all, particularly in light of the current disruption in the financial markets;
•changes in general economic conditions, in our industry and in the commercial finance and real estate markets, including the impact on the value of our assets or the performance of our investments;
•the relative spreads between the yield on the assets in which we invest and the cost of financing;
•impairments in the value of the collateral underlying our investments and the relation of any such impairments to the value of our securities or loans;
•risks associated with our indebtedness, including our senior unsecured notes, and related restrictive covenants and non-recourse long-term financing structures;
•adverse changes in the financing markets we access affecting our ability to finance our investments on attractive terms, or at all;


•changing market conditions could potentially lead to increased margin calls, lenders not extending our secured financing agreements or other financings in accordance with their current terms or not entering into new financings with us;
•changes in interest rates and/or credit spreads, as well as the continued effectsuccess of previously disclosed events;any hedging strategy we may undertake in relation to such changes;
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 MSRs, mortgage servicing rights (“MSRs”), excess mortgage servicing rights (“Excess MSRs, Servicer Advance Investments, RMBS,MSRs”), servicer advance investments, residential mortgage-backed securities (“RMBS”), residential mortgage loanloans and consumer loan portfolios;
•the risks that default and recovery rates on our MSRs, Excess MSRs, Servicer Advance Investments,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;
the relationship between yields•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 assetsour Servicer Advance Investments or MSRs;
•cybersecurity incidents and technology disruptions or failures;
•our dependence on counterparties and vendors to provide certain services, which subjects us to various risks;
•our exposure to counterparties that are paid off and yields on assets in which such monies can be reinvested;unwilling or unable to honor contractual obligations, including their obligation to indemnify us or repurchase defective mortgage loans;
the relative spreads between the yield on the assets in which we invest and the cost of financing;
changes in economic conditions generally and the real estate and bond markets specifically;
adverse changes in the financing markets we access affecting •our ability to financemaintain our investmentsexclusion from registration under the Investment Company Act of 1940 (the “1940 Act”), and limits on attractive terms, or at all;our operations from maintaining such exclusion;
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;
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 availability and terms of capital for future investments;
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, potential tax reform, the federal conservatorship of Fannie Mae and Freddie Mac and legislation that permits modification of the terms of residential mortgage loans;
•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 havelimits on our business;operations from maintaining REIT status;
•competition within the finance and real estate industries;
•our ability to maintainattract and retain highly skilled personnel;
•impact from our exclusion from registration underpast and future acquisitions, and our ability to successfully integrate the Investment Company Act of 1940 (the “1940 Act”)acquired assets and the fact that maintaining such exclusion imposes limits on our operations;assumed liabilities;
the risks related to HLSS liabilities that we have assumed;
the impact of current or future legal proceedings and regulatory investigations and inquiries;
•the impact of any material transactions or relationships with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest;
effects•the legislative/regulatory environment, including, but not limited to, the impact of the pending mergerDodd-Frank Act, regulation of Fortress Investment Group LLC with affiliatescorporate governance and public disclosure, changes in accounting rules, U.S. government programs intended to grow the economy, future changes to tax laws, the federal conservatorship of SoftBank Group Corp.;the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and legislation that permits modification of the terms of residential mortgage loans;
•the risk that GSEactions by Fannie Mae or the Freddie Mac or other regulatory initiatives or actions may adversely affect returns from investments in MSRs and Excess MSRs.MSRs and may lower gain on sale margins;

•adverse market, regulatory or interest rate environments or our issuance of debt or equity, any of which may negatively affect the market price of our common stock;
•our ability to pay distributions on our common stock; and
•risks associated with the acquisition of Caliber Home Loans Inc., potential adverse impacts on our business and operations from uncertainties associated with the acquisition and our ability to successfully integrate the businesses and realize the anticipated benefits of the acquisition.

We also direct readers to other risks and uncertainties referenced in this report, including those set forth under “Risk Factors.” We caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is


impossible for us to predict those events or how they may affect us. Except as required by law, we are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement, whether written or oral, that we may make from time to time, whether as a result of new information, future events or otherwise.





SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about New Residential Investment Corp. (the “Company,” “New Residential” or “we,” “our” and “us”) or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements proved to be inaccurate;
•have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.


Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.www.sec.gov. See “Business-Corporate Governance and Internet Address; Where Readers Can Find Additional Information.”
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 




NEW RESIDENTIAL INVESTMENT CORP.
FORM 10-Q
 
INDEX
PAGE
Part I. Financial Information
PAGE
Part I. Financial Information
1
1
Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2017 and 2016
32
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2017 and 2016
43
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2017
54
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and 2016
68
911
9
Note 2. Other Income, Assets and Liabilities
11
Note 3. Segment Reporting
12
Note 4. Investments in Excess Mortgage Servicing Rights
15
Note 5. Investments in Mortgage Servicing Rights and Mortgage Servicing Rights Financing Receivable
18
Note 6. Servicer Advance Investments
25
Note 7. Investments in Real Estate Securities
29
Note 8. Investments in Residential Mortgage Loans
33
Note 9. Investments in Consumer Loans
38
Note 10. Derivatives
45
Note 11. Debt Obligations
46
Note 12. Fair Value Measurement
49
Note 13. Equity and Earnings Per Share
55
Note 14. Commitments and Contingencies
56
Note 15. Transactions with Affiliates and Affiliated Entities
58
Note 16. Reclassification from Accumulated Other Comprehensive Income into Net Income
60
Note 17. Income Taxes
60
Note 18. Subsequent Events
61
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
6268
General
62
Market Considerations
62
Our Portfolio
64
Application of Critical Accounting Policies
76
Recent Accounting Pronouncements
76


77
Liquidity and Capital Resources
85
Interest Rate, Credit and Spread Risk
91
Off-Balance Sheet Arrangements
92
Contractual Obligations
92
Inflation
92
Core Earnings
92
Item 3. Quantitative and Qualitative Disclosures About Market Risk
96105
105111
Part II. Other Information
106112
107112
158163
158163
158163
158163
159164
165173
 




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)thousands, except share data)
 September 30, 2017 December 31, 2016
 (Unaudited) 
Assets   
Investments in:   
Excess mortgage servicing rights, at fair value$1,178,308
 $1,399,455
Excess mortgage servicing rights, equity method investees, at fair value175,633
 194,788
Mortgage servicing rights, at fair value1,702,749
 659,483
Mortgage servicing rights financing receivable, at fair value607,396
 —
Servicer advance investments, at fair value(A)
4,044,802
 5,706,593
Real estate securities, available-for-sale6,714,846
 5,073,858
Residential mortgage loans, held-for-investment702,227
 190,761
Residential mortgage loans, held-for-sale(A)
1,426,751
 696,665
Real estate owned107,281
 59,591
Consumer loans, held-for-investment(A)
1,467,933
 1,799,486
Consumer loans, equity method investees46,322
 —
Cash and cash equivalents(A)
279,760
 290,602
Restricted cash152,047
 163,095
Servicer advances receivable657,255
 81,582
Trades receivable1,785,708
 1,687,788
Deferred tax asset, net32,440
 151,284
Other assets323,375
 244,498
 $21,404,833
 $18,399,529
    
Liabilities and Equity   
    
Liabilities   
  Repurchase agreements$7,848,028
 $5,190,631
  Notes and bonds payable(A)
7,236,967
 7,990,605
  Trades payable1,076,086
 1,381,968
  Due to affiliates79,624
 47,348
  Dividends payable153,681
 115,356
  Accrued expenses and other liabilities331,243
 205,444
 16,725,629
 14,931,352
    
Commitments and Contingencies

 

    
Equity   
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 307,361,309 and 250,773,117 issued and outstanding at September 30, 2017 and December 31, 2016, respectively3,074
 2,507
  Additional paid-in capital3,760,372
 2,920,730
  Retained earnings424,854
 210,500
  Accumulated other comprehensive income (loss)383,312
 126,363
  Total New Residential stockholders’ equity4,571,612
 3,260,100
  Noncontrolling interests in equity of consolidated subsidiaries107,592
 208,077
    Total Equity4,679,204
 3,468,177
 $21,404,833
 $18,399,529
September 30, 2021
(Unaudited)		December 31, 2020
Assets
Excess mortgage servicing rights assets, at fair value$359,288 $410,855 
Mortgage servicing rights and mortgage servicing rights financing receivables, at fair value(A)
6,565,267 4,585,841 
Servicer advance investments, at fair value(A)
472,004 538,056 
Real estate and other securities9,973,795 14,244,558 
Residential loans and variable interest entity consumer loans held-for-investment, at fair value(A)
1,142,807 1,359,754 
Residential mortgage loans, held-for-sale ($13,972,557 and $4,705,816 at fair value, respectively)14,117,300 5,215,703 
Residential mortgage loans subject to repurchase(B)
1,826,620 1,452,005 
Cash and cash equivalents(A)
1,366,678 944,854 
Restricted cash(A)
194,745 135,619 
Servicer advances receivable2,782,622 3,002,267 
Receivable for investments sold— 4,180 
Other assets(A)
2,802,989 1,358,422 
$41,604,115 $33,252,114 
Liabilities and Equity
Liabilities
Secured financing agreements(A)
$22,759,985 $17,547,680 
Secured notes and bonds payable ($798,198 and $1,662,852 at fair value, respectively)(A)
8,248,092 7,644,195 
Residential mortgage loan repurchase liability(B)
1,826,620 1,452,005 
Unsecured senior notes, net of issuance costs542,849 541,516 
Payable for investments purchased— 154 
Due to affiliates8,895 9,450 
Dividends payable124,999 90,128 
Accrued expenses and other liabilities(A)
1,465,562 537,302 
34,977,002 27,822,430 
Commitments and Contingencies00
Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 52,210,000 and 33,610,000 issued and outstanding, $1,305,250 and $840,250 aggregate liquidation preference, respectively1,262,498 812,992 
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 466,579,920 and 414,744,518 issued and outstanding, respectively4,667 4,148 
Additional paid-in capital6,057,739 5,547,108 
Retained earnings (accumulated deficit)(856,803)(1,108,929)
Accumulated other comprehensive income87,989 65,697 
Total New Residential stockholders’ equity6,556,090 5,321,016 
Noncontrolling interests in equity of consolidated subsidiaries(A)
71,023 108,668 
  Total equity6,627,113 5,429,684 
$41,604,115 $33,252,114 
(A)The Company's Consolidated Balance Sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (New Residential). As of September 30, 2021, and December 31, 2020, total assets of consolidated VIEs were $3.1 billion and $2.7 billion, respectively, and total liabilities of consolidated VIEs were $2.4 billion and $2.1 billion, respectively. See Note 13 for further details.
(B)See Note 5 for details.

See Notes to Consolidated Financial Statements.
1


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(dollars in thousands)

(A)New Residential’s Condensed Consolidated Balance Sheets include the assets and liabilities of certain consolidated VIEs, the Buyer (Note 6), the RPL Borrowers (Note 8), and the Consumer Loan SPVs (Note 9), which primarily hold investments in Servicer Advance Investments, residential mortgage loans, and consumer loans, respectively, financed with notes and bonds payable. The balance sheets of the Buyer, the RPL Borrowers and the Consumer Loan SPVs are included in Notes 6, 8 and 9, respectively. The creditors of the Buyer, the RPL Borrowers, and the Consumer Loan SPVs do not have recourse to the general credit of New Residential and the assets of the Buyer, the RPL Borrowers, and the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.

See notes to condensed consolidated financial statements.


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share and per share data)
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
    Interest income$397,722
 $282,388
 $1,162,212
 $749,901
    Interest expense125,278
 96,488
 338,664
 278,401
Net Interest Income272,444
 185,900
 823,548
 471,500
        
Impairment       
    Other-than-temporary impairment (OTTI) on securities1,509
 1,765
 8,736
 7,838
    Valuation and loss provision on loans and real estate owned26,700
 18,275
 65,381
 41,845
 28,209
 20,040
 74,117
 49,683
        
  Net interest income after impairment244,235
 165,860
 749,431
 421,817
Servicing revenue, net58,014
 —
 269,467
 —
Other Income       
Change in fair value of investments in excess mortgage servicing rights(14,291) (17,060) (32,650) (24,397)
Change in fair value of investments in excess mortgage servicing rights, equity method investees2,054
 6,261
 6,056
 8,608
Change in fair value of investments in mortgage servicing rights financing receivable70,232
 —
 75,828
 —
Change in fair value of servicer advance investments10,941
 21,606
 70,469
 4,328
Gain on consumer loans investment—
 —
 —
 9,943
Gain on remeasurement of consumer loans investment—
 —
 —
 71,250
Gain (loss) on settlement of investments, net1,553
 (11,165) 1,250
 (37,682)
Earnings from investments in consumer loans, equity method investees6,769
 —
 12,649
 —
Other income (loss), net9,887
 27,059
 7,696
 6,850
 87,145
 26,701
 141,298
 38,900
        
Operating Expenses       
    General and administrative expenses19,919
 8,777
 47,788
 28,082
    Management fee to affiliate14,187
 10,536
 41,447
 30,552
    Incentive compensation to affiliate19,491
 7,075
 72,123
 13,200
    Loan servicing expense13,690
 14,187
 40,068
 30,037
    Subservicing expense49,773
 —
 123,435
 —
 117,060
 40,575
 324,861
 101,871
        
Income Before Income Taxes272,334
 151,986
 835,335
 358,846
Income tax expense (benefit)32,613
 20,900
 121,053
 18,195
Net Income$239,721
 $131,086
 $714,282
 $340,651
Noncontrolling interests in Income of Consolidated Subsidiaries$13,600
 $32,178
 $45,051
 $61,355
Net Income Attributable to Common Stockholders$226,121
 $98,908
 $669,231
 $279,296
        
Net Income Per Share of Common Stock       
  Basic$0.74
 $0.41
 $2.23
 $1.19
  Diluted$0.73
 $0.41
 $2.21
 $1.19
        
Weighted Average Number of Shares of Common
Stock Outstanding		       
  Basic307,361,309
 240,601,691
 300,511,550
 233,875,067
  Diluted309,207,345
 241,099,381
 302,357,147
 234,184,611
        
Dividends Declared per Share of Common Stock$0.50
 $0.46
 $1.48
 $1.38
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Revenues
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$398,645 $450,859 $1,168,431 $1,390,042 
Change in fair value of MSRs and MSR financing receivables (includes realization of cash flows of $(287,318), $(509,624), $(924,766) and $(1,135,515), respectively)(195,623)(415,339)(421,332)(1,731,378)
Servicing revenue, net203,022 35,520 747,099 (341,336)
Interest income190,633 169,780 593,342 622,224 
Gain on originated mortgage loans, held-for-sale, net566,761 488,253 1,257,094 966,813 
960,416 693,553 2,597,535 1,247,701 
Expenses
Interest expense129,928 130,528 355,372 463,786 
General and administrative expenses245,071 178,245 647,244 546,939 
Compensation and benefits324,545 167,137 717,919 412,402 
Management fee to affiliate24,315 22,482 70,154 66,682 
723,859 498,392 1,790,689 1,489,809 
Other Income (Loss)
Change in fair value of investments11,112 111,082 1,224 (123,314)
Gain (loss) on settlement of investments, net(98,317)(94,457)(188,919)(968,995)
Other income (loss), net59,266 3,681 79,696 (39,766)
(27,939)20,306 (107,999)(1,132,075)
Impairment
Provision (reversal) for credit losses on securities(2,370)(3,849)(5,020)15,166 
Valuation and credit loss provision (reversal) on loans and real estate owned8,748 14,584 (42,617)118,504 
6,378 10,735 (47,637)133,670 
Income (Loss) Before Income Taxes202,240 204,732 746,484 (1,507,853)
Income tax expense (benefit)31,559 100,812 128,741 (48,647)
Net Income (Loss)$170,681 $103,920 $617,743 $(1,459,206)
Noncontrolling interests in income of consolidated subsidiaries9,001 11,640 28,448 34,118 
Dividends on preferred stock15,533 14,359 44,249 39,938 
Net Income (Loss) Attributable to Common Stockholders$146,147 $77,921 $545,046 $(1,533,262)
Net Income (Loss) Per Share of Common Stock
  Basic$0.31 $0.19 $1.22 $(3.69)
  Diluted$0.30 $0.19 $1.18 $(3.69)
Weighted Average Number of Shares of Common Stock Outstanding
  Basic466,579,920 415,744,518 446,085,657 415,665,441 
  Diluted482,282,695 420,968,626 461,694,481 415,665,441 
Dividends Declared per Share of Common Stock$0.25 $0.15 $0.65 $0.30 
 
See notesNotes to condensed consolidated financial statements.Consolidated Financial Statements.

2


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
Three Months Ended
September 30,		Nine Months Ended September 30,
2021202020212020
Net income (loss)$170,681 $103,920 $617,743 $(1,459,206)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities, net6,541 17,535 27,680 108,308 
Reclassification of realized (gain) loss on available-for-sale securities, net into net income(63)3,809 (5,388)(738,385)
Comprehensive income (loss)177,159 125,264 640,035 (2,089,283)
Comprehensive income (loss) attributable to noncontrolling interests9,001 11,640 28,448 34,118 
Dividends on preferred stock15,533 14,359 44,249 39,938 
Comprehensive income (loss) attributable to common stockholders$152,625 $99,265 $567,338 $(2,163,339)
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Comprehensive income (loss), net of tax       
Net income$239,721
 $131,086
 $714,282
 $340,651
Other comprehensive income (loss)       
Net unrealized gain (loss) on securities75,845
 52,138
 277,805
 108,679
        Reclassification of net realized (gain)
loss on securities into earnings		(5,833) 2,444
 (20,856) (7,234)
 70,012
 54,582
 256,949
 101,445
Total comprehensive income$309,733
 $185,668
 $971,231
 $442,096
Comprehensive income attributable
to noncontrolling interests		$13,600
 $32,178
 $45,051
 $61,355
Comprehensive income attributable
to common stockholders		$296,133
 $153,490
 $926,180
 $380,741

See notesNotes to condensed consolidated financial statements.Consolidated Financial Statements.



NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(dollars in thousands)
3
 Common Stock            
 Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total New Residential Stockholders’ Equity 
Noncontrolling
Interests in Equity of Consolidated Subsidiaries
 Total Equity
Equity - December 31, 2016250,773,117
 $2,507
 $2,920,730
 $210,500
 $126,363
 $3,260,100
 $208,077
 $3,468,177
Dividends declared—
 —
 —
 (454,877) —
 (454,877) —
 (454,877)
Capital contributions—
 —
 —
 —
 —
 —
 —
 —
Capital distributions—
 —
 —
 —
 —
 —
 (70,493) (70,493)
Issuance of common stock56,545,787
 566
 833,963
 —
 —
 834,529
 —
 834,529
Purchase of noncontrolling interests in the Buyer—
 —
 9,183
 —
 —
 9,183
 (75,043) (65,860)
Other dilution—
 —
 (4,202) —
 —
 (4,202) —
 (4,202)
Director share grants42,405
 1
 698
 —
 —
 699
 —
 699
Comprehensive income (loss)               
   Net income (loss)—
 —
 —
 669,231
 —
 669,231
 45,051
 714,282
   Net unrealized gain (loss) on securities—
 —
 —
 —
 277,805
 277,805
 —
 277,805
   Reclassification of net realized (gain) loss on securities into earnings—
 —
 —
 —
 (20,856) (20,856) —
 (20,856)
Total comprehensive income (loss)

 

 

 

 

 926,180
 45,051
 971,231
Equity - September 30, 2017307,361,309
 $3,074
 $3,760,372
 $424,854
 $383,312
 $4,571,612
 $107,592

$4,679,204
See notes to condensed consolidated financial statements.


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
(dollars in thousands, except share and per share data)

Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries		Total Equity
SharesAmountSharesAmount
Balance at June 30, 202133,610,000 $812,992 466,579,920 $4,667 $6,059,186 $(886,305)$81,511 $6,072,051 $94,100 $6,166,151 
Dividends declared on common stock, $0.25 per share— — — — — (116,645)— (116,645)— (116,645)
Dividends declared on preferred stock— — — — — (15,533)— (15,533)— (15,533)
Capital distributions— — — — — — — — (11,002)(11,002)
Issuance of preferred stock18,600,000 449,506 — — — — — 449,506 — 449,506 
Purchase of noncontrolling interests— — — — (1,447)— — (1,447)(21,076)(22,523)
Comprehensive income (loss)
Net income— — — — — 161,680 — 161,680 9,001 170,681 
Unrealized gain (loss) on available-for-sale securities, net— — — — — — 6,541 6,541 — 6,541 
Reclassification of realized (gain) loss on available-for-sale securities, net into net income— — — — — — (63)(63)— (63)
Total comprehensive income (loss)168,158 9,001 177,159 
Balance at September 30, 202152,210,000 $1,262,498 466,579,920 $4,667 $6,057,739 $(856,803)$87,989 $6,556,090 $71,023 $6,627,113 
4

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(dollars in thousands, except share and per share data)
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries		Total Equity
SharesAmountSharesAmount
Balance at June 30, 202033,610,000 $812,992 415,744,518 $4,158 $5,554,559 $(1,110,148)$30,730 $5,292,291 $96,681 $5,388,972 
Dividends declared on common stock, $0.15 per share— — — — — (62,362)— (62,362)— (62,362)
Dividends declared on preferred stock— — — — — (14,359)— (14,359)— (14,359)
Capital contributions— — — — — — — — 25 25 
Capital distributions— — — — — — — — (8,909)(8,909)
Comprehensive income (loss)
Net income (loss)— — — — — 92,280 — 92,280 11,640 103,920 
Unrealized gain (loss) on available-for-sale securities, net— — — — — — 17,535 17,535 — 17,535 
Reclassification of realized (gain) loss on available-for-sale securities, net into net income— — — — — — 3,809 3,809 — 3,809 
Total comprehensive income (loss)113,624 11,640 125,264 
Balance at September 30, 202033,610,000 $812,992 415,744,518 $4,158 $5,554,559 $(1,094,589)$52,074 $5,329,194 $99,437 $5,428,631 













5

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
(dollars in thousands, except share and per share data)
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries		Total Equity
SharesAmountSharesAmount
Balance at December 31, 202033,610,000 $812,992 414,744,518 $4,148 $5,547,108 $(1,108,929)$65,697 $5,321,016 $108,668 $5,429,684 
Dividends declared on common stock, $0.65 per share— — — — — (292,920)— (292,920)— (292,920)
Dividends declared on preferred stock— — — — — (44,249)— (44,249)— (44,249)
Capital distributions— — — — — — — — (45,017)(45,017)
Issuance of common stock— — 51,725,000 517 510,970 — — 511,487 — 511,487 
Issuance of preferred stock18,600,000 449,506 — — — — — 449,506 — 449,506 
Purchase of noncontrolling interests(1,447)(1,447)(21,076)(22,523)
Director share grants— — 110,402 2 1,108 — — 1,110 — 1,110 
Comprehensive income (loss)
Net income (loss)— — — — — 589,295 — 589,295 28,448 617,743 
Unrealized gain (loss) on available-for-sale securities, net— — — — — — 27,680 27,680 — 27,680 
Reclassification of realized (gain) loss on available-for-sale securities, net into net income— — — — — — (5,388)(5,388)— (5,388)
Total comprehensive income (loss)— — — — — — — 611,587 28,448 640,035 
Balance at September 30, 202152,210,000 $1,262,498 466,579,920 $4,667 $6,057,739 $(856,803)$87,989 $6,556,090 $71,023 $6,627,113 












6

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED), CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(dollars in thousands, except share and per share data)
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal New Residential Stockholders’ EquityNoncontrolling
Interests in Equity of Consolidated Subsidiaries		Total Equity
SharesAmountSharesAmount
Balance at December 31, 201917,510,000 $423,444 415,520,780 $4,156 $5,498,226 $549,733 $682,151 7,157,710 $78,550 $7,236,260 
Cumulative adjustment for the adoption of ASU 2016-13— — — — — 13,658 — 13,658 16,795 30,453 
2020 Warrants— — — — 53,462 — — 53,462 — 53,462 
Dividends declared on common stock, $0.30 per share— — — — — (124,718)— (124,718)— (124,718)
Dividends declared on preferred stock— — — — — (39,938)— (39,938)— (39,938)
Capital contributions— — — — — — — — 1,818 1,818 
Capital distributions— — — — — — — — (31,844)(31,844)
Issuance of common stock— — 97,394 1 1,661 — — 1,662 — 1,662 
Issuance of preferred stock16,100,000 389,548 — — — — — 389,548 — 389,548 
Director share grants— — 126,344 1 1,210 — — 1,211 — 1,211 
Comprehensive income (loss)
Net income (loss)— — — — — (1,493,324)(1,493,324)34,118 (1,459,206)
Unrealized gain (loss) on available-for-sale securities, net— — — — — — 108,308 108,308 — 108,308 
Reclassification of realized (gain) loss on available-for-sale securities, net into net income— — — — — — (738,385)(738,385)— (738,385)
Total comprehensive income (loss)(2,123,401)34,118 (2,089,283)
Balance at September 30, 202033,610,000 $812,992 415,744,518 $4,158 $5,554,559 $(1,094,589)$52,074 $5,329,194 $99,437 $5,428,631 

See Notes to Consolidated Financial Statements.
7

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 Nine Months Ended  
 September 30,
 2017 2016
Cash Flows From Operating Activities   
Net income$714,282
 $340,651
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Change in fair value of investments in excess mortgage servicing rights32,650
 24,397
Change in fair value of investments in excess mortgage servicing rights, equity method investees(6,056) (8,608)
Change in fair value of investments in mortgage servicing rights financing receivable(75,828) —
Change in fair value of servicer advance investments(70,469) (4,328)
(Gain) / loss on remeasurement of consumer loans investment—
 (71,250)
(Gain) / loss on settlement of investments (net)(1,250) 37,682
Earnings from investments in consumer loans, equity method investees(12,649) —
Unrealized (gain) / loss on derivative instruments124
 15,112
Unrealized (gain) / loss on other ABS(340) 226
(Gain) / loss on transfer of loans to REO(16,791) (14,660)
(Gain) / loss on transfer of loans to other assets(359) (3,021)
(Gain) / loss on Excess MSR recapture agreements(1,948) (2,188)
(Gain) / loss on Ocwen common stock(6,987) —
Accretion and other amortization(811,922) (514,522)
Other-than-temporary impairment8,736
 7,838
Valuation and loss provision on loans and real estate owned65,381
 41,845
Non-cash portions of servicing revenue, net81,986
 —
Non-cash directors’ compensation699
 300
Deferred tax provision114,016
 12,998
Changes in:   
Servicer advances receivable(7,774) —
Other assets(35,799) 191,939
Due to affiliates32,276
 (5,175)
Accrued expenses and other liabilities48,442
 12,136
Other operating cash flows:   
Interest received from excess mortgage servicing rights53,067
 119,386
Interest received from servicer advance investments136,431
 132,758
Interest received from Non-Agency RMBS170,931
 73,108
Interest received from residential mortgage loans, held-for-investment5,906
 2,815
Interest received from PCD consumer loans, held-for-investment40,762
 34,265
Distributions of earnings from investments in excess mortgage servicing rights, equity method investees11,054
 18,025
Distributions of earnings from investments in consumer loans, equity method investees4,291
 —
Purchases of residential mortgage loans, held-for-sale(4,146,740) (788,824)
Proceeds from sales of purchased residential mortgage loans, held-for-sale2,986,992
 802,110
Principal repayments from purchased residential mortgage loans, held-for-sale69,069
 52,805
Net cash provided by (used in) operating activities(617,817) 507,820


Nine Months Ended
September 30,
20212020
Cash Flows From Operating Activities
Net income (loss)$617,743 $(1,459,206)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of Excess MSRs12,245 14,675 
Change in fair value of servicer advance investments6,535 (431)
Change in fair value of residential mortgage loans, at fair value(154,984)108,306 
Change in fair value of secured notes and bonds payable(5,245)(535)
Change in fair value of real estate and other securities336,009 531 
Change in fair value of consumer loans13,338 4,446 
Bargain purchase gain(3,497)— 
(Gain) loss on settlement of investments, net189,002 904,200 
(Gain) loss on originated mortgage loans, held-for-sale, net(1,257,094)(966,813)
(Gain) loss on extinguishment of debt(83)64,795 
Change in fair value of derivative instruments(214,367)(4,213)
Change in fair value of contingent consideration886 5,949 
Change in fair value of equity investments(5,929)52,413 
(Gain) loss on transfer of loans to REO(3,412)(5,010)
(Gain) loss on transfer of loans to other assets14 773 
(Gain) loss on Ocwen common stock(1,050)(221)
Accretion and other amortization (Note 2)(36,559)(127,456)
Depreciation on single family rental properties3,174 473 
Provision (reversal) for credit losses on securities(5,020)15,166 
Valuation and credit loss provision (reversal) on loans and real estate owned(42,617)118,504 
Non-cash portions of servicing revenue, net421,332 1,731,378 
Non-cash directors’ compensation1,110 1,211 
Deferred tax provision119,679 (42,439)
Changes in:
Servicer advances receivable, net303,841 470,221 
Other assets(112,966)159,684 
Due to affiliates(555)(94,337)
Accrued expenses and other liabilities(227,151)(204,710)
Other operating cash flows:
Interest and distributions received from Excess MSRs16,810 27,415 
Interest received from servicer advance investments8,990 14,183 
Interest received from Non-Agency RMBS78,903 137,000 
Interest received from residential mortgage loans, held-for-investment3,196 3,907 
Purchases of residential mortgage loans, held-for-sale(5,797,205)(2,390,498)
Origination of residential mortgage loans, held-for-sale(84,611,600)(36,801,062)
Proceeds from sales of purchased and originated residential mortgage loans, held-for-sale89,272,284 39,908,942 
Principal repayments from purchased residential mortgage loans, held-for-sale387,748 226,436 
Net cash provided by (used in) operating activities(686,495)1,885,868 
Continued on next page.

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
8

CONDENSED NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
Nine Months Ended  
 September 30,		Nine Months Ended
September 30,
2017 201620212020
Cash Flows From Investing Activities   Cash Flows From Investing Activities
Acquisition of investments in excess mortgage servicing rights—
 (2,022)
SpringCastle Transaction, net of cash acquired—
 (49,943)
Restricted cash acquired from SpringCastle Transaction—
 74,603
Purchase of servicer advance investments(9,328,137) (11,588,537)Purchase of servicer advance investments(976,629)(991,289)
Purchase of MSRs, MSR Financing Receivables and servicer advances receivable(1,586,063) —
Purchase of MSRs, MSR financing receivables and servicer advances receivablePurchase of MSRs, MSR financing receivables and servicer advances receivable(15,617)(530,657)
Purchase of Agency RMBS(6,352,488) (4,763,374)Purchase of Agency RMBS(6,098,841)(18,584,357)
Purchase of Non-Agency RMBS(2,070,898) (2,154,890)Purchase of Non-Agency RMBS— (56,515)
Purchase of residential mortgage loans(585,983) (319)
Purchase of derivatives—
 (4,457)
Purchase of real estate owned and other assets(25,667) (10,936)Purchase of real estate owned and other assets(368,092)(5,347)
Purchase of investment in consumer loans, equity method investees(344,902) (92,069)
Purchase of equity method investmentsPurchase of equity method investments(13,397)— 
Draws on revolving consumer loans(41,930) (33,137)Draws on revolving consumer loans(21,680)(25,008)
Origination of commercial loansOrigination of commercial loans(250,000)— 
Payments for settlement of derivatives(146,898) (73,570)Payments for settlement of derivatives(153,770)(160,465)
Return of investments in excess mortgage servicing rights142,626
 142,718
Return of investments in excess mortgage servicing rights, equity method investees14,157
 11,900
Return of investments in consumer loans, equity method investees276,601
 —
Return of investments in Excess MSRsReturn of investments in Excess MSRs38,472 40,101 
Acquisition of Caliber, net of cash acquiredAcquisition of Caliber, net of cash acquired(811,207)— 
Principal repayments from servicer advance investments10,898,739
 13,101,409
Principal repayments from servicer advance investments1,034,242 1,036,634 
Principal repayments from Agency RMBS76,744
 67,738
Principal repayments from Agency RMBS1,688,338 838,200 
Principal repayments from Non-Agency RMBS615,657
 364,310
Principal repayments from Non-Agency RMBS121,857 358,322 
Principal repayments from residential mortgage loans59,673
 31,092
Principal repayments from residential mortgage loans86,878 100,433 
Principal repayments from commercial loansPrincipal repayments from commercial loans23,442 — 
Principal repayments from consumer loans312,132
 199,022
Principal repayments from consumer loans160,615 176,125 
Proceeds from MSRs and MSR financing receivablesProceeds from MSRs and MSR financing receivables1,086 64,623 
Proceeds from sale of MSRs and MSR financing receivablesProceeds from sale of MSRs and MSR financing receivables59,163 14,160 
Proceeds from sale of Excess MSRsProceeds from sale of Excess MSRs2,363 144 
Proceeds from sale of Agency RMBS6,205,573
 4,774,116
Proceeds from sale of Agency RMBS8,074,294 23,249,507 
Proceeds from sale of Non-Agency RMBS166,460
 95,683
Proceeds from sale of Non-Agency RMBS164,630 5,292,717 
Proceeds from settlement of derivatives81,505
 9,642
Proceeds from settlement of derivatives13,258 65,650 
Proceeds from sale of real estate owned63,476
 51,941
Proceeds from sale of real estate owned47,638 84,733 
Net cash provided by (used in) investing activities(1,569,623) 150,920
Net cash provided by (used in) investing activities2,807,043 10,967,711 
Continued on next page.

9
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

CONDENSED NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(dollars in thousands)
 Nine Months Ended  
 September 30,
 2017 2016
Cash Flows From Financing Activities   
Repayments of repurchase agreements(34,057,218) (21,179,260)
Margin deposits under repurchase agreements and derivatives(820,678) (274,645)
Repayments of notes and bonds payable(7,323,512) (6,786,408)
Payment of deferred financing fees(5,702) (19,922)
Common stock dividends paid(416,552) (318,060)
Borrowings under repurchase agreements36,713,743
 22,065,713
Return of margin deposits under repurchase agreements and derivatives815,903
 276,634
Borrowings under notes and bonds payable6,561,390
 5,568,875
Issuance of common stock835,465
 279,600
Costs related to issuance of common stock(936) (825)
Noncontrolling interest in equity of consolidated subsidiaries - contributions—
 —
Noncontrolling interest in equity of consolidated subsidiaries - distributions(70,493) (73,279)
Purchase of noncontrolling interests in the Buyer(65,860) —
   Net cash provided by (used in) financing activities2,165,550
 (461,577)
    
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash(21,890) 197,163
    
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period453,697
 344,638
    
Cash, Cash Equivalents, and Restricted Cash, End of Period$431,807
 $541,801
    
Supplemental Disclosure of Cash Flow Information   
Cash paid during the period for interest$320,804
 $265,114
Cash paid during the period for income taxes4,956
 943
    
Supplemental Schedule of Non-Cash Investing and Financing Activities   
Dividends declared but not paid$153,681
 $115,356
Purchase of Agency and Non-Agency RMBS, settled after quarter end1,076,086
 1,296,296
Sale of investments, primarily Agency RMBS, settled after quarter end1,785,708
 1,530,726
Transfer from residential mortgage loans to real estate owned and other assets105,750
 218,467
Non-cash distributions from Consumer Loan Companies—
 25
Non-cash distributions from LoanCo30,337
 —
MSR purchase price holdback79,045
 —
Real estate securities retained from loan securitizations310,579
 122,585
Remeasurement of Consumer Loan Companies noncontrolling interest—
 110,438
Transfer of loans from held-for-investment to held-for sale23,080
 316,199
Ocwen transaction (Note 5) - excess mortgage servicing rights71,982
 —
Ocwen transaction (Note 5) - servicer advance investments481,220
 —
Nine Months Ended
September 30,
20212020
Cash Flows From Financing Activities
Repayments of secured financing agreements(58,118,431)(113,038,497)
Repayments of warehouse credit facilities(88,254,304)(40,782,950)
Margin deposits under secured financing agreements and derivatives(4,245,890)(3,519,989)
Proceeds for issuance of term loan— 592,400 
Repayments of secured notes and bonds payable(5,920,361)(7,040,542)
Deferred financing fees(4,385)(31,863)
Common stock dividends paid(259,224)(270,117)
Preferred stock dividends paid(43,073)(36,730)
Borrowings under secured financing agreements54,297,394 101,149,869 
Borrowings under warehouse credit facilities90,195,545 39,427,045 
Return of margin deposits under secured financing agreements and derivatives4,424,635 3,717,645 
Borrowings under secured notes and bonds payable5,402,819 7,057,202 
Issuance of preferred stock449,506 389,548 
Issuance of common stock512,012 1,734 
Costs related to issuance of common and preferred stock(525)(72)
Noncontrolling interests in equity of consolidated subsidiaries - contributions— 1,818 
Noncontrolling interests in equity of consolidated subsidiaries - distributions(45,017)(31,844)
Payment of contingent consideration(7,776)(51,994)
Purchase of noncontrolling interests(22,523)— 
   Net cash provided by (used in) financing activities(1,639,598)(12,522,937)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash480,950 330,642 
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period1,080,473 690,934 
Cash, Cash Equivalents, and Restricted Cash, End of Period$1,561,423 $1,021,576 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$365,241 $450,792 
Cash paid during the period for income taxes20,732 105 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Common dividends declared but not paid$116,645 $62,362 
Preferred dividends declared but not paid19,601 14,359 
Warrants issued with term loan— 53,462 
Purchase of investments, settled after quarter-end— 210 
Sale of investments, settled after quarter-end— 946,321 
Transfer from residential mortgage loans to real estate owned and other assets34,697 56,297 
MSR purchase price holdback— (45,014)
Real estate securities retained from loan securitizations145,920 518,515 
Residential mortgage loans subject to repurchase1,826,620 1,458,325 
See notesNotes to condensed consolidated financial statements.

Consolidated Financial Statements.

10
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

1.ORGANIZATION AND BASIS OF PRESENTATION
1.    ORGANIZATION AND BASIS OF PRESENTATION
 
New Residential Investment Corp. (together with its subsidiaries, “New Residential”Residential,” or “the Company”) is a Delaware corporation that was formed as a limited liability company in September 2011 (commenced operations on December 8, 2011) for the purpose of making real estate related investments and commenced operations on December 8, 2011. On December 20, 2012, New Residential was converted to a corporation. Drive Shack Inc. (“Drive Shack”), formerly Newcastle Investment Corp., was the sole stockholder of New Residential until the spin-off, which was completed on May 15, 2013. Following the spin-off,investments. New Residential is an independent publicly traded real estate investment trust (“REIT”)REIT primarily focused on investing in residential mortgage related assets. New Residentialassets and is listed on the New York Stock Exchange (“NYSE”) under the symbol “NRZ.” New Residential’s investment portfolio is composed of mortgage servicing related assets (full and excess MSRs and servicer advances), residential securities (and associated called rights), properties (including single family rental) and loans, and consumer loans. New Residential’s investments in operating entities include leading origination and servicing platforms through wholly-owned subsidiaries, Newrez LLC (“Newrez”) and Caliber Home Loans Inc. (“Caliber”), as well as investments in affiliated businesses that provide mortgage related services.
 
New Residential has elected and intends to qualify to be taxed as a REIT for U.S. federal income tax purposes. As such, New Residential will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. See Note 17, Income Taxes, for additional information regarding New Residential’s taxable REIT subsidiaries.

New Residential, through its wholly-owned subsidiaries New Residential Mortgage LLC (“NRM”), Newrez and Caliber 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, Newrez and Caliber are 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, in the case of Newrez and Caliber, Government National Mortgage Association (“Ginnie Mae”). Newrez and Caliber are also eligible to perform servicing on behalf of other servicers (subservicing) and investors.

Newrez and Caliber currently originate, sell and securitize conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as “Agency” loans), government-insured Federal Housing Administration (“FHA”) and Department of Veterans Affairs (“VA”), and U.S. Department of Agriculture (“USDA”) and non-qualified (“Non-QM”) residential mortgage loans. The GSEs or Ginnie Mae guarantee securitizations are completed under their applicable policies and guidelines. New Residential generally retains the right to service the underlying residential mortgage loans sold and securitized by Newrez and Caliber. NRM, Newrez and Caliber are required to conduct aspects of their operations in accordance with applicable policies and guidelines published by FHA, VA, USDA, Fannie Mae, Freddie Mac and Ginnie Mae.

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. The Manager also manages Drive Shack, investment funds that indirectly own a majority of the outstanding interests in Nationstar Mortgage LLC (“Nationstar”), a leading residential mortgage servicer, and investment funds that own a majority of the outstanding common stock of OneMain Holdings, Inc. (formerly Springleaf Holdings, Inc.) (together with its subsidiaries, “OneMain”), former managing member of the Consumer Loan Companies (Note 9).See Note 16 for additional information.

As of September 30, 2017,2021, New Residential conducted its business through the following segments: (i) investments in excess mortgage servicing rights (“Excess MSRs”),Origination, (ii) investments in mortgage servicing rights (“MSRs”),Servicing, (iii) Servicer AdvanceMSR Related Investments, (including the basic fee component of the related MSRs), (iv) investments in real estate securities,Residential Securities, Properties and Loans, (v) investments in residential mortgage loans,Consumer Loans and (vi) investments in consumer loans and (vii) corporate.Corporate.
 
Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals as of September 30, 2017.2021. In addition, Fortress, through its affiliates, held options and warrants relating to approximately 16.118.7 million and 22.0 million shares, respectively, of New Residential’s common stock as of September 30, 2017.2021.

Acquisition of Caliber Home Loans Inc.

On April 14, 2021, New Residential entered into a Stock Purchase Agreement (the “SPA”) with LSF Pickens Holdings, LLC (“LSF”), a Delaware limited liability company and an affiliate of Lone Star Funds, and Caliber, a leading mortgage originator and servicer and then-wholly owned subsidiary of LSF. The SPA provided that, upon the terms and subject to the conditions set forth therein, the Company or one of its subsidiaries will purchase all of the issued and outstanding equity interests of Caliber
11
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
from LSF. On August 23, 2021, New Residential completed its acquisition of all of the outstanding equity interests of Caliber from LSF for a purchase price of $1.318 billion in cash.

The results of Caliber’s operations have been included in the Company’s Consolidated Statements of Income for both the three and nine months ended September 30, 2021 from the date of the acquisition and represent $246.4 million of revenue and $29.1 million of net income.

The Caliber acquisition has been accounted for as a business combination under ASC 805, Business Combinations, (“ASC 805”) using the acquisition method of accounting, whereby the total purchase price has been allocated to identifiable assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired that meet the criteria for separate recognition and represents the estimated future economic benefits arising from these and other assets acquired that could not be individually identified or do not qualify for recognition as a separate asset. Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Based on the New Residential’s preliminary analysis, the Company recognized a bargain purchase gain of approximately $3.5 million in the Caliber acquisition and the amount is grouped and presented as part of Other Income in the Consolidated Statements of Income. The bargain purchase gain was primarily driven by differences in Caliber’s projected net income versus actuals between the period of Caliber acquisition announcement and its closing.

Recorded fair valuation of assets acquired and liabilities assumed related to the acquisition of Caliber is preliminary and will be completed as soon as practicable, but no later than one year after the consummation of the transaction. Pursuant to ASC 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, New Residential will recognize any provisional amount adjustments during the reporting period in which the adjustments are determined as part of the bargain purchase gain.

The preliminary estimate of fair value of assets and liabilities required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that management believes to be reasonable; however, actual results may differ from these estimates. The assessment of fair value is preliminary and is based on information that was available to management at the time the consolidated financial statements were prepared. Those estimates and assumptions are subject to change as management obtains additional information related to those estimates during the applicable measurement period. The most significant open items necessary to complete are related to intangible assets, other assets, deferred income taxes, and other liabilities. The final acquisition accounting adjustments, including those resulting from conforming Caliber’s accounting policies to those of New Residential could differ materially.

Acquisition-related costs are expensed in the period incurred. New Residential recognized $5.5 million and $9.6 million of acquisition-related costs that were expensed for the three and nine months ended September 30, 2021, respectively. These costs are grouped and presented within General and Administrative Expenses in the Consolidated Statements of Income.

The table below summarizes New Residential’s allocation of the total consideration paid to acquire the assets and assume the liabilities of Caliber (in millions):
12
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Assets Acquired
Mortgage servicing rights, at fair value$1,507.5 
Residential mortgage loans, held-for-sale7,685.7 
Residential mortgage loans subject to repurchase666.8 
Cash and cash equivalents472.7 
Restricted cash30.6 
Servicer advances receivable113.4 
Other assets640.6 
Total Assets Acquired$11,117.3 
Liabilities Assumed
Secured financing agreements$7,090.6 
Secured notes and bonds payable1,121.8 
Residential mortgage loan repurchase liability666.8 
Accrued expenses and other liabilities916.1 
Total Liabilities Assumed$9,795.3 
Net Assets$1,322.0 
Total Consideration$1,318.5 
Goodwill (Bargain Purchase Gain)$(3.5)

Intangible assets consist of purchased technology and trade names/trademarks. New Residential amortizes intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is 4.8 years. The following table presents the details of identifiable intangible assets acquired:
Estimated Useful LifeAmount
Purchased technology5$38,545 
Trade names/trademarks12,483 
Total identifiable intangible assets$41,028 

Unaudited Supplemental Pro Forma Financial Information — The following table presents unaudited pro forma combined revenues and income before income taxes for the three and nine months ended September 30, 2021 and 2020 prepared as if the Caliber acquisition had been consummated on January 1, 2020:
Three Months Ended
September 30,		Nine Months Ended
September 30,
Pro Forma2021202020212020
Revenues$1,285,690 $1,463,384 $4,257,458 $3,333,123 
Income Before Income Taxes148,380 487,755 1,043,357 (874,436)

The unaudited supplemental pro forma financial information reflects, among others, financing adjustments, amortization of intangibles, and transactions costs. The unaudited supplemental pro forma financial information has not been adjusted to reflect all conforming of accounting policies. The unaudited supplemental pro forma financial information does not include any anticipated synergies or other anticipated benefits of the Caliber 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 Caliber acquisition occurred on January 1, 2020, the beginning of the earliest period presented.
13
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 

Interim Financial Statements


The accompanying condensed consolidated financial statements and related notes of New Residential have beenConsolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles have been condensed(“GAAP’’ or omitted.“U.S. GAAP”). In the opinion of management, all adjustments considered necessary for a fair presentation of New Residential’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The Consolidated Financial Statements include the accounts of New Residential and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. New Residential consolidates those entities in which it has control over significant operating, results presented for interim periods are not necessarily indicativefinancing and investing decisions of the results that mayentity, as well as those entities deemed to be expectedvariable 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 any other interim period orconsolidation, New Residential uses the equity method of accounting whereby it records its share of the underlying income of such entities. Distributions from equity method investees are classified in the Consolidated Statements of Cash Flows based on the cumulative earnings approach, where all distributions up to cumulative earnings are classified as distributions of earnings.

Reclassifications

As of and for the entire year. These condensed consolidated financial statements should be readthree and nine months ended September 30, 2021, New Residential changed its presentation of certain balance sheet and income statement line items to better reflect how New Residential is managed. Specifically, MSR Financing Receivables is presented together with Mortgage Servicing Rights, at Fair Value on the Consolidated Balance Sheets. In addition, components of interest income from MSR financing receivables—(i) servicing fee revenue, (ii) ancillary and other fees and (iii) subservicing expense—as well as change in conjunction with New Residential’s consolidated financial statements forfair value of MSR financing receivables are included in Servicing Revenue, Net or General and Administrative Expenses in the year ended December 31, 2016 and notes thereto includedConsolidated Income Statements. Prior period amounts in New Residential’s Annual Report on Form 10-K filed with the SecuritiesConsolidated Financial Statements and Exchange Commission (the “SEC”). Capitalized terms used herein, and not otherwise defined, are defined in New Residential’s consolidated financial statements for the year ended December 31, 2016.
Certain prior period amountsrespective notes have been reclassified to conform to the current period’speriod presentation. Such reclassifications had no impact on net income, total assets, total liabilities, or stockholders’ equity.



In addition to above, certain other prior period amounts in New Residential’s Consolidated Financial Statements and respective notes have been reclassified to be consistent with the current period presentation. Such reclassifications had no impact on net income, total assets, total liabilities, or stockholders’ equity.

Risks and Uncertainties

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

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

New Residential is subject to significant tax risks. If New Residential were to fail to qualify as a REIT in any taxable year, New Residential would be subject to U.S. federal corporate income tax (including any applicable alternative minimum tax), which could be material. Unless entitled to relief under certain statutory provisions, New Residential would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost.
9
14
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

Use of Estimates

The Company believes the estimates and assumptions underlying its Consolidated Financial Statements are reasonable and supportable based on the information available as of September 30, 2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may materially differ from those estimates.

Recent Accounting Pronouncements


In May 2014,March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenues from Contracts with Customers (Topic 606)Reporting. The standard’s core principlestandard was issued to ease the accounting effects of reform to the London Interbank Offered Rate (“LIBOR”) and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt, derivatives, and other contracts affected by reference rate reform. While the Company currently does not have any hedge accounting relationships, many of the Company’s debt facilities and loan agreements incorporate LIBOR as the referenced rate. Some of these facilities and loan agreements either mature prior to the phase out of LIBOR or have provisions in place that provide for an alternative to LIBOR upon its phase-out. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur. In preparation for the phase-out of LIBOR, the Company has adopted and implemented the SOFR index for our Freddie Mac and Fannie Mae adjustable-rate mortgages (“ARMs”). For debt facilities that do not mature prior to the phase-out of LIBOR, the Company has begun amending terms to transition to an alternative benchmark. The Company continues to evaluate the transitional impact to serviced ARMs.

In August 2020, the FASB issued ASU 2020-06, Debt–Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Topic 815). The standard simplifies the accounting for convertible instruments by reducing the number of accounting models. A convertible debt instrument will generally be reported as a company will recognize revenue when it transfers promised goods or services to customerssingle liability at its amortized cost with no separate accounting for embedded conversion features. The standard also amends the accounting for certain contracts in an amountentity’s own equity that reflectsare currently accounted for as derivatives because of specific settlement provisions. In addition, the considerationnew guidance eliminates the treasury stock method to whichcalculate diluted earnings per share for convertible instruments and requires the company expects to be entitled in exchange for those goods or services. In effect, companies will be required to exercise further judgment and make more estimates prospectively. These may include identifying performance obligations inuse of the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.if-converted method. ASU No. 2014-092020-16 is effective for New Residential beginning in the first quarter of 2018. Early2022 with early adoption is only permitted after December 31, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidancebeginning in ASU No. 2014-09. New Residential has evaluated the new guidance and determined that interest income, gains and losses on financial instruments and income from servicing residential mortgage loans are outside the scope of ASC No. 606. For income from servicing residential mortgage loans, New Residential considered that the FASB Transition Resource Group members generally agreed that an entity should look to ASC No. 860, Transfers and Servicing, to determine the appropriate accounting for these fees and ASC No. 606 contains a scope exception for contracts that fall under ASC No. 860. As a result, New Residential does not expect the2021. The adoption of ASU No. 2014-092020-06 is not expected to have a material impact on its condensed consolidated financial statements.the Company’s Consolidated Financial Statements.

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 is effective for New Residential in the first quarter of 2018. Early adoption is generally not permitted. An entity should apply ASU No. 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. New Residential does not expect the adoption of ASU No. 2016-01 to have a material impact on its condensed consolidated financial statements.

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 collectibility 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. Early adoption is permitted beginning in 2019. An entity should apply ASU No. 2016-13 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. New Residential is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)- Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on the treatment of certain transactions within the statement of cash flows. ASU No. 2016-15 is effective for New Residential in the first quarter of 2018. Early adoption is permitted. New Residential adopted ASU No. 2016-15 in the third quarter of 2016 and it did not have an impact on its condensed consolidated financial statements.

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 is effective for New Residential in the first quarter of 2018. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued. New Residential does not expect the adoption of ASU No. 2016-16 to have a material impact on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. ASU No. 2016-18 is effective for New Residential in the first quarter of 2018. Early adoption


10
15
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

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

Other assets and liabilities consist of the following:
Other AssetsAccrued Expenses
and Other Liabilities
September 30, 2021December 31, 2020September 30, 2021December 31, 2020
Margin receivable, net(A)
$388,528 $271,753 Margin payable$90,751 $— 
Servicing fee receivables146,509 137,426 MSR purchase price holdback18,555 25,121 
Due from servicers31,201 67,854 Interest payable45,983 44,623 
Principal and interest receivable30,782 41,590 Accounts payable322,825 87,406 
Equity investments(B)
70,754 55,504 Derivative liabilities54,766 119,762 
Other receivables138,209 109,111 Due to servicers42,201 59,671 
REO26,569 45,299 Due to agencies13,262 26,748 
Single-family rental properties403,651 41,271 Contingent consideration9,299 14,247 
Goodwill(C)
29,468 29,468 Accrued compensation and benefits175,273 67,025 
Notes receivable, at fair value(D)
51,663 52,389 Excess spread financing, at fair value— 18,420 
Warrants, at fair value26,302 23,218 Operating lease liabilities (Note 15)140,438 31,270 
Recovery asset11,217 13,006 Reserve for sales recourse36,782 9,799 
Property and equipment59,611 26,999 Reserve for servicing losses22,425 9,288 
Receivable from government agency(E)
7,437 14,369 Deferred tax liability407,577 7,859 
Intangible assets73,723 34,125 Other liabilities85,425 16,063 
Prepaid expenses81,955 30,949 $1,465,562 $537,302 
Operating lease right-of-use assets (Note 15)115,598 26,913 
Derivative assets266,904 290,144 
Ocwen common stock, at fair value4,834 11,187 
Loans receivable, at fair value(F)
233,339 — 
Credit facilities receivable(G)
101,505 — 
Loans in process and settlements in process(H)
396,907 — 
Other assets106,323 35,847 
$2,802,989 $1,358,422 
(A)Represents collateral posted as a result of changes in fair value of New Residential adopted ASU No. 2016-18Residential’s (i) real estate securities securing its secured financing agreements and (ii) derivative instruments.
(B)Represents equity investments in funds that invest in (i) a commercial redevelopment project, and (ii) operating companies in the fourth quartersingle-family housing industry. The indirect investments are accounted for at fair value based on the net asset value of 2016New Residential’s investment and has included changesas an equity method investment, respectively. Equity investments also includes an investment in restricted cashCovius Holding Inc. (“Covius”), a provider of various technology-enabled services to the mortgage and real estate industries, preferred stock in its statementsValon Mortgage, Inc (“Valon”), a residential mortgage servicing and technology company, and preferred stock in Credijusto Ltd. (“Covalto”), a financial services company.
(C)Includes goodwill derived from the acquisition of cash flows for all periods presented.Shellpoint Partners LLC (“Shellpoint”) and Guardian Asset Management LLC (“Guardian”).

16

2.OTHER INCOME, ASSETSNEW RESIDENTIAL INVESTMENT CORP. AND LIABILITIES
Gain (loss) on settlement of investments, net is comprised of the following:

 Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
 2017��2016 2017 2016
Gain (loss) on sale of real estate securities, net$7,342
 $(679) $29,592
 $15,072
Gain (loss) on sale of residential mortgage loans, net9,029
 8,537
 37,967
 9,142
Gain (loss) on settlement of derivatives(18,756) (18,925) (58,326) (63,699)
Gain (loss) on liquidated residential mortgage loans(2,152) (1,331) (7,996) (1,603)
Gain (loss) on sale of REO(1,864) 2,207
 (7,176) 5,193
Other gains (losses)7,954
 (974) 7,189
 (1,787)
 $1,553
 $(11,165) $1,250
 $(37,682)

Other income (loss), net, is comprised of the following:

 Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
 2017 2016 2017 2016
Unrealized gain (loss) on derivative instruments$3,560
 $21,048
 $(124) $(15,112)
Unrealized gain (loss) on other ABS189
 724
 340
 (226)
Gain (loss) on transfer of loans to REO5,179
 4,373
 16,791
 14,660
Gain (loss) on transfer of loans to other assets66
 2,743
 359
 3,021
Gain on Excess MSR recapture agreements606
 768
 1,948
 2,188
Gain (loss) on Ocwen common stock6,987
 —
 6,987
 —
Other income (loss)(6,700) (2,597) (18,605) 2,319
 $9,887
 $27,059
 $7,696
 $6,850


11
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

Other assets(D)Represents a subordinated debt facility to Covius and liabilitiesa private note with Matic Insurance Services, Inc. (“Matic”). The loans are comprised ofaccounted for under the following:

 Other Assets   
Accrued Expenses
and Other Liabilities
 September 30, 2017 December 31, 2016   September 30, 2017 December 31, 2016
Margin receivable, net$60,310
 $55,481
 Interest payable $30,075
 $23,108
Other receivables20,053
 16,350
 Accounts payable 85,622
 31,299
Principal and interest receivable50,467
 52,738
 Derivative liabilities (Note 10) 82
 3,021
Receivable from government agency43,313
 54,706
 Current taxes payable 4,553
 2,314
Call rights327
 337
 Due to servicers 58,203
 77,148
Derivative assets (Note 10)10,444
 6,762
 MSR purchase price holdback 139,481
 60,436
Servicing fee receivables60,107
 7,405
 Other liabilities 13,227
 8,118
Ginnie Mae EBO servicer advance receivable, net10,863
 14,829
   $331,243
 $205,444
Due from servicers22,014
 22,134
      
Ocwen common stock, at fair value20,900
 —
      
Prepaid expenses8,083
 9,487
      
Other assets16,494
 4,269
      
 $323,375
 $244,498
      

As reflected onfair value option. Electing the Condensedfair value option allows the Company to record changes in fair value in the Consolidated Statements of Cash Flows, accretionIncome and other amortization is comprisedprovides users of the following:financial statements with better information regarding the effect of market factors.

  Nine Months Ended  
 September 30,
  2017 2016
Accretion of servicer advance investment and receivable interest income $451,824
 $257,877
Accretion of excess mortgage servicing rights income 75,237
 106,848
Accretion of net discount on securities and loans(A)
 295,753
 164,806
Amortization of deferred financing costs (9,525) (13,889)
Amortization of discount on notes and bonds payable (1,367) (1,120)
  $811,922
 $514,522

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


3.SEGMENT REPORTING
(E)Represents claims receivable from the FHA on early buyout (“EBO”) and reverse mortgage loans for which foreclosure has been completed and for which New Residential conducts its business throughhas made or intends to make a claim on the following segments: (i) investments in Excess MSRs, (ii) investments in MSRs, (iii) Servicer Advance Investments, (iv) investments in real estate securities, (v) investments in residential mortgageFHA guarantee.
(F)Represents loans (vi) investments in consumer loans,made pursuant to a senior credit agreement and (vii) corporate.a senior subordinated credit agreement to an entity affiliated with funds managed by an affiliate of the Manager (see Note 16). The corporate segment consists primarily of (i) general and administrative expenses, (ii) the management fees and incentive compensation related to the Management Agreement and (iii) corporate cash and related interest income. Securities owned by New Residential (Note 7) that are collateralized by servicer advances and consumer loans are includedaccounted for under the fair value option. Electing the fair value option allows the Company to record changes in fair value in the Servicer AdvancesConsolidated Statements of Income and Consumer provides users of the financial statements with better information regarding the effect of market factors.
(G)Represents cash deposits and collections associated with certain collateral assets which are held by the lender trust until settled each month.
(H)Loans segments, respectively. Secured corporate loans effectively collateralized by Excess MSRs are includedin process represent timing differences in the Excess MSRs segment.disbursing of funds and the closing of the loan. Settlements in process represent timing differences in the receipt of funds and settlement of the loan sale.



Real Estate Owned (REO) and Single-Family Rental Properties (SFR)
12
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

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 Related Assets Residential Securities and Loans      
 Excess MSRs MSRs Servicer Advances Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
Three Months Ended September 30, 2017               
Interest income$25,691
 $31,707
 $130,796
 $114,181
 $31,645
 $63,527
 $175
 $397,722
Interest expense10,225
 15,262
 35,931
 35,211
 15,487
 13,162
 —
 125,278
Net interest income (expense)15,466
 16,445
 94,865
 78,970
 16,158
 50,365
 175
 272,444
Impairment—
 —
 —
 1,509
 14,099
 12,601
 —
 28,209
Servicing revenue, net—
 58,014
 —
 —
 —
 —
 —
 58,014
Other income (loss)(12,034) 70,047
 18,732
 (6,035) 2,653
 6,796
 6,986
 87,145
Operating expenses152
 53,634
 1,212
 351
 9,759
 10,764
 41,188
 117,060
Income (Loss) Before Income Taxes3,280
 90,872
 112,385
 71,075
 (5,047) 33,796
 (34,027) 272,334
Income tax expense (benefit)—
 11,156
 31,097
 —
 (9,640) —
 —
 32,613
Net Income (Loss)$3,280
 $79,716
 $81,288
 $71,075
 $4,593
 $33,796
 $(34,027) $239,721
Noncontrolling interests in income (loss) of consolidated subsidiaries$—
 $—
 $1,224
 $—
 $—
 $12,376
 $—
 $13,600
Net income (loss) attributable to common stockholders$3,280
 $79,716
 $80,064
 $71,075
 $4,593
 $21,420
 $(34,027) $226,121

 Servicing Related Assets Residential Securities and Loans      
 Excess MSRs MSRs Servicer Advances Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
Nine Months Ended September 30, 2017               
Interest income$75,237
 $34,267
 $451,808
 $321,464
 $75,276
 $203,631
 $529
 $1,162,212
Interest expense29,302
 26,849
 120,527
 85,663
 34,655
 41,668
 —
 338,664
Net interest income (expense)45,935
 7,418
 331,281
 235,801
 40,621
 161,963
 529
 823,548
Impairment—
 —
 —
 8,736
 17,342
 48,039
 —
 74,117
Servicing revenue, net—
 269,467
 —
 —
 —
 —
 —
 269,467
Other income (loss)(25,049) 75,856
 75,307
 (27,005) 22,491
 12,712
 6,986
 141,298
Operating expenses350
 132,675
 2,641
 979
 24,018
 33,746
 130,452
 324,861
Income (Loss) Before Income Taxes20,536
 220,066
 403,947
 199,081
 21,752
 92,890
 (122,937) 835,335
Income tax expense (benefit)—
 (789) 128,836
 —
 (7,164) 170
 —
 121,053
Net Income (Loss)$20,536
 $220,855
 $275,111
 $199,081
 $28,916
 $92,720
 $(122,937) $714,282
Noncontrolling interests in income (loss) of consolidated subsidiaries$—
 $—
 $10,372
 $—
 $—
 $34,679
 $—
 $45,051
Net income (loss) attributable to common stockholders$20,536
 $220,855
 $264,739
 $199,081
 $28,916
 $58,041
 $(122,937) $669,231


13
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

 Servicing Related Assets Residential Securities and Loans      
 Excess MSRs MSRs Servicer Advances Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
September 30, 2017               
Investments$1,353,941
 $2,310,145
 $4,044,802
 $6,714,846
 $2,236,259
 $1,514,255
 $—
 $18,174,248
Cash and cash equivalents210
 132,361
 74,993
 3,341
 4,747
 33,430
 30,678
 279,760
Restricted cash12,360
 28,839
 60,615
 —
 —
 50,233
 —
 152,047
Other assets8,757
 712,765
 44,312
 1,840,028
 126,767
 31,632
 34,517
 2,798,778
Total assets$1,375,268
 $3,184,110
 $4,224,722
 $8,558,215
 $2,367,773
 $1,629,550
 $65,195
 $21,404,833
Debt$583,415
 $1,672,101
 $3,567,862
 $6,003,165
 $1,830,731
 $1,427,721
 $—
 $15,084,995
Other liabilities1,042
 241,919
 23,542
 1,092,745
 34,542
 6,308
 240,536
 1,640,634
Total liabilities584,457
 1,914,020
 3,591,404
 7,095,910
 1,865,273
 1,434,029
 240,536
 16,725,629
Total equity790,811
 1,270,090
 633,318
 1,462,305
 502,500
 195,521
 (175,341) 4,679,204
Noncontrolling interests in equity of consolidated subsidiaries—
 —
 73,316
 —
 —
 34,276
 —
 107,592
Total New Residential stockholders’ equity$790,811
 $1,270,090
 $560,002
 $1,462,305
 $502,500
 $161,245
 $(175,341) $4,571,612
Investments in equity method investees$175,633
 $—
 $—
 $—
 $—
 $46,322
 $—
 $221,955

Servicing Related Assets
Residential Securities and Loans






Excess MSRs
Servicer Advances
Real Estate Securities
Residential Mortgage Loans
Consumer Loans
Corporate
Total
Three Months Ended September 30, 2016












Interest income$30,617

$101,359

$58,855

$13,947

$77,231

$379

$282,388
Interest expense4,002

54,802

13,008

6,153

18,523

—

96,488
Net interest income (expense)26,615

46,557

45,847

7,794

58,708

379

185,900
Impairment—

—

1,765

(291)
18,566

—

20,040
Servicing revenue, net—
 —
 —
 —
 —
 —
 —
Other income (loss)(10,052)
21,430

1,392

13,931

—

—

26,701
Operating expenses536

1,029

369

4,251

11,976

22,414

40,575
Income (Loss) Before Income Taxes16,027
 66,958
 45,105
 17,765
 28,166
 (22,035)
151,986
Income tax expense (benefit)—
 16,348
 —
 4,556
 —
 (4)
20,900
Net Income (Loss)$16,027
 $50,610
 $45,105
 $13,209
 $28,166
 $(22,031)
$131,086
Noncontrolling interests in income (loss) of consolidated subsidiaries$—
 $18,853
 $—
 $—
 $13,325
 $—

$32,178
Net income (loss) attributable to common stockholders$16,027
 $31,757
 $45,105
 $13,209
 $14,841
 $(22,031)
$98,908


14
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

 Servicing Related Assets Residential Securities and Loans      
 Excess MSRs Servicer Advances Real Estate Securities Residential Mortgage Loans Consumer Loans Corporate Total
Nine Months Ended September 30, 2016             
Interest income$106,848
 $265,119
 $172,982
 $47,712
 $155,541
 $1,699
 $749,901
Interest expense12,117
 176,672
 31,425
 20,447
 37,740
 —
 278,401
Net interest income (expense)94,731
 88,447
 141,557
 27,265
 117,801
 1,699
 471,500
Impairment—
 —
 7,838
 7,309
 34,536
 —
 49,683
Servicing revenue, net—
 —
 —
 —
 —
 —
 —
Other income (loss)(14,234) 9,103
 (59,472) 22,295
 81,193
 15
 38,900
Operating expenses1,066
 3,076
 1,307
 11,194
 26,194
 59,034
 101,871
Income (Loss) Before Income Taxes79,431
 94,474
 72,940
 31,057
 138,264
 (57,320) 358,846
Income tax expense (benefit)—
 13,743
 —
 4,377
 75
 —
 18,195
Net Income (Loss)$79,431
 $80,731
 $72,940
 $26,680
 $138,189
 $(57,320) $340,651
Noncontrolling interests in income (loss) of consolidated subsidiaries$—
 $33,400
 $—
 $—
 $27,955
 $—
 $61,355
Net income (loss) attributable to common stockholders$79,431
 $47,331
 $72,940
 $26,680
 $110,234
 $(57,320) $279,296



4.INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

The following table presents activity related to the carrying value of investments in REO and SFR:
REOSFR
Balance at December 31, 2020$45,299 $41,271 
Purchases2,269 365,823 
Transfer of loans to REO27,020 — 
Sales(A)
(45,933)(269)
Depreciation— (3,174)
Valuation (provision) reversal(2,086)— 
Balance at September 30, 2021$26,569 $403,651 
(A)Recognized when control of the property has transferred to the buyer.

As of September 30, 2021 and December 31, 2020, New Residential’s SFR portfolio consisted of approximately 1,882 and 257 units, respectively. During the three and nine months ended September 30, 2021, New Residential acquired approximately 727 and 1,625 SFR units, respectively.

As of September 30, 2021, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $72.9 million.

Notes and Loans Receivable
The following table summarizes the activity for notes and loans receivable:
Notes ReceivableLoans ReceivableTotal
Balance at December 31, 2020$52,389 $— $52,389 
Fundings1,688 250,000 251,688 
Accrued interest paid-in-kind4,017 2,036 6,053 
Proceeds from repayments(3,188)(18,697)(21,885)
Fair value adjustments due to:
Changes in instrument-specific credit risk— — — 
Other factors(3,243)— (3,243)
Balance at September 30, 2021$51,663 $233,339 $285,002 

17
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The following table summarizes the difference between the aggregate unpaid principal balance and the aggregate fair value of notes and loans receivable:
September 30, 2021December 31, 2020
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal BalanceUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
Current$287,431 $285,002 $(2,429)$51,575 $52,389 $814 
90+— — — — — — 
$287,431 $285,002 $(2,429)$51,575 $52,389 $814 

Accretion and Other Amortization

As reflected on the Consolidated Statements of Cash Flows, Accretion and Other Amortization consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Accretion of net discount on securities and loans$3,317 $18,321 $25,414 $81,112 
Accretion of servicer advances receivable discount and servicer advance investments398 25,503 7,194 38,967 
Accretion of excess mortgage servicing rights income4,195 12,595 16,188 25,177 
Amortization of deferred financing costs(2,513)(6,360)(10,890)(12,352)
Amortization of discount on secured notes and bonds payable(14)(379)(14)(379)
Amortization of discount on corporate debt(441)(3,214)(1,333)(5,069)
Total accretion and other amortization$4,942 $46,466 $36,559 $127,456 

General and Administrative Expenses

General and Administrative Expenses consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Legal and professional$29,419 $22,209 $66,225 $63,798 
Loan origination52,481 23,596 137,642 59,462 
Occupancy18,612 9,356 39,183 26,195 
Subservicing74,156 91,031 234,599 277,367 
Loan servicing3,976 8,311 13,282 23,313 
Property and maintenance19,331 10,503 47,216 26,855 
Other miscellaneous general and administrative
47,096 13,239 109,097 69,949 
Total general and administrative expenses$245,071 $178,245 $647,244 $546,939 

18
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Change in Fair Value of Investments

Change in Fair Value of Investments consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Excess MSRs$(4,837)$(664)$(13,666)$(11,773)
Excess MSRs, equity method investees(1,176)(393)1,421 (2,902)
Servicer advance investments(1,662)3,143 (6,535)431 
Real estate and other securities5,538 27,663 (336,009)(531)
Residential mortgage loans(26,432)56,940 154,984 (108,306)
Consumer loans held-for-investment(5,708)1,304 (13,338)(4,446)
Derivative instruments45,389 23,089 214,367 4,213 
Total change in fair value of investments$11,112 $111,082 $1,224 $(123,314)

Gain (Loss) on Settlement of Investments, Net

Gain (Loss) on Settlement of Investments, Net consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Gain (loss) on sale of real estate securities$(63,809)$7,658 $(89,500)$(753,551)
Sale of acquired residential mortgage loans66,807 3,751 116,404 (8,343)
Settlement of derivatives(73,978)(23,192)(152,913)(133,099)
Liquidated residential mortgage loans(6,497)165 (5,868)2,546 
Sale of REO371 1,016 (3,814)2,632 
Extinguishment of debt— (66,256)83 (64,795)
Other(21,211)(17,599)(53,311)(14,385)
Total gain (loss) on settlement of investments, net$(98,317)$(94,457)$(188,919)$(968,995)

19
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Other Income (Loss), Net

Other Income (Loss), Net consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Unrealized gain (loss) on secured notes and bonds payable$4,029 $(5,611)$5,245 $535 
Unrealized gain (loss) on contingent consideration(478)(2,079)(886)(5,949)
Unrealized gain (loss) on equity investments10,546 (4,716)5,929 (52,413)
Gain (loss) on transfer of loans to REO(699)703 3,412 5,010 
Gain (loss) on transfer of loans to other assets(37)(512)(14)(773)
Gain (loss) on Ocwen common stock(489)4,342 1,050 221 
Provision for servicing losses(3,347)(3,734)(26,148)(19,764)
Bargain purchase gain3,497 — 3,497 — 
Rental and ancillary revenue19,072 6,790 39,094 17,851 
Property and maintenance revenue28,755 16,837 73,765 45,495 
Other income (loss)(1,583)(8,339)(25,248)(29,979)
Total other income (loss), net$59,266 $3,681 $79,696 $(39,766)

3.    SEGMENT REPORTING
At September 30, 2021, New Residential’s reportable segments include (i) Origination, (ii) Servicing, (iii) MSR Related Investments, (iv) Residential Securities, Properties and Loans, (v) Consumer Loans and (vi) Corporate. The Corporate segment primarily consists of general and administrative expenses, management fees and incentive compensation related to the Management Agreement, corporate cash and related interest income, unsecured senior notes (Note 11) and related interest expense.

During the three months ended September 30, 2021, due to the Caliber acquisition, 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. Based on this reevaluation, MSR assets serviced by Newrez (previously reflected within the MSR Related Segment) and Caliber, representing $385.2 billion UPB as of September 30, 2021, are reflected within Servicing. MSRs owned by third-parties but serviced by the Company’s subsidiaries, representing $75.8 billion as of September 30, 2021, are also reflected within Servicing. MSR assets sub-serviced by third-parties (PHH Mortgage Corporation (“PHH”), LoanCare, LLC (“LoanCare”), Flagstar Bank (“Flagstar”) and Mr. Cooper), representing $164.7 billion UPB as of September 30, 2021, continue to be reflected as part of the MSR Related Investments. Segment information for prior periods have been restated to reflect this change.

The following tables summarize segment financial information, which in total reconciles to the same data for New Residential as a whole:
20
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Origination and ServicingResidential Securities, Properties and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesProperties and Residential Mortgage LoansConsumer LoansCorporateTotal
Three Months Ended September 30, 2021
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$(6,451)$257,520 $147,576 $— $398,645 $— $— $— $— $398,645 
Change in fair value of MSRs and MSR financing receivables— (118,941)(76,682)— (195,623)— — — — (195,623)
Servicing revenue, net(6,451)138,579 70,894 — 203,022 — — — — 203,022 
Interest income54,851 (2,729)11,385 — 63,507 52,489 37,490 22,708 14,439 190,633 
Gain on originated mortgage loans, held-for-sale, net510,740 28,292 (44,235)47,672 542,469 15,276 9,016 — — 566,761 
Total revenues559,140 164,142 38,044 47,672 808,998 67,765 46,506 22,708 14,439 960,416 
Interest expense37,775 43,199 7,499 — 88,473 9,365 19,680 2,656 9,754 129,928 
G&A and other344,198 102,602 87,927 — 534,727 1,753 23,901 2,553 30,997 593,931 
Total operating expenses381,973 145,801 95,426 — 623,200 11,118 43,581 5,209 40,751 723,859 
Change in fair value of investments— — (7,675)— (7,675)50,927 (26,432)(5,708)— 11,112 
Gain (loss) on settlement of investments, net— (989)(1,295)— (2,284)(130,066)34,033 — — (98,317)
Other income (loss), net368 (11)41,848 — 42,205 — 17,641 415 (995)59,266 
Total other income (loss)368 (1,000)32,878 — 32,246 (79,139)25,242 (5,293)(995)(27,939)
Impairment— — — — — (2,370)8,748 — — 6,378 
Income (loss) before income taxes177,535 17,341 (24,504)47,672 218,044 (20,122)19,419 12,206 (27,307)202,240 
Income tax expense (benefit)32,322 (3,125)(8,372)— 20,825 — 10,735 (1)— 31,559 
Net income (loss)145,213 20,466 (16,132)47,672 197,219 (20,122)8,684 12,207 (27,307)170,681 
Noncontrolling interests in income (loss) of consolidated subsidiaries3,032 — (280)— 2,752 — — 6,249 — 9,001 
Dividends on preferred stock— — — — — — — — 15,533 15,533 
Net income (loss) attributable to common stockholders$142,181 $20,466 $(15,852)$47,672 $194,467 $(20,122)$8,684 $5,958 $(42,840)$146,147 
Origination and ServicingResidential Securities, Properties and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesProperties and Residential Mortgage LoansConsumer LoansCorporateTotal
Nine months ended September 30, 2021
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$(19,638)$696,143 $491,926 $— $1,168,431 $— $— $— $— $1,168,431 
Change in fair value of MSRs and MSR financing receivables— (178,630)(242,702)— (421,332)— — — — (421,332)
Servicing revenue, net(19,638)517,513 249,224 — 747,099 — — — — 747,099 
Interest income108,965 13,460 35,969 — 158,394 240,299 107,106 73,104 14,439 593,342 
Gain on originated mortgage loans, held-for-sale, net1,163,702 53,103 (109,127)85,390 1,193,068 25,036 38,990 — — 1,257,094 
Total revenues1,253,029 584,076 176,066 85,390 2,098,561 265,335 146,096 73,104 14,439 2,597,535 
Interest expense74,798 130,191 17,013 — 222,002 38,715 58,419 8,547 27,689 355,372 
G&A and other734,675 280,165 258,498 — 1,273,338 3,943 62,555 8,501 86,980 1,435,317 
Total operating expenses809,473 410,356 275,511 — 1,495,340 42,658 120,974 17,048 114,669 1,790,689 
Change in fair value of investments— — (18,780)— (18,780)(121,642)154,984 (13,338)— 1,224 
Gain (loss) on settlement of investments, net— (31,972)15,873 — (16,099)(234,692)62,220 — (348)(188,919)
Other income (loss), net565 1,081 56,891 — 58,537 (1,686)22,221 575 49 79,696 
Total other income (loss)565 (30,891)53,984 — 23,658 (358,020)239,425 (12,763)(299)(107,999)
Impairment— — — — — (5,020)(42,617)— — (47,637)
Income (loss) before income taxes444,121 142,829 (45,461)85,390 626,879 (130,323)307,164 43,293 (100,529)746,484 
Income tax expense (benefit)87,738 14,804 (17,206)— 85,336 — 43,326 79 — 128,741 
Net income (loss)356,383 128,025 (28,255)85,390 541,543 (130,323)263,838 43,214 (100,529)617,743 
Noncontrolling interests in income (loss) of consolidated subsidiaries9,782 — (797)— 8,985 — — 19,463 — 28,448 
Dividends on preferred stock— — — — — — — — 44,249 44,249 
Net income (loss) attributable to common stockholders$346,601 $128,025 $(27,458)$85,390 $532,558 $(130,323)$263,838 $23,751 $(144,778)$545,046 

21
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 

Origination and ServicingResidential Securities, Properties and Loans
OriginationServicingMSR Related InvestmentsTotal Servicing and OriginationReal Estate SecuritiesProperties and Residential Mortgage LoansConsumer LoansCorporateTotal
September 30, 2021
Investments$11,714,006 $4,848,688 $3,017,963 $19,580,657 $9,973,795 $2,958,434 $547,795 $— $33,060,681 
Cash and cash equivalents768,301 102,825 321,924 1,193,050 171,532 53 1,778 265 1,366,678 
Restricted cash35,284 87,969 29,525 152,778 15,704 1,457 24,806 — 194,745 
Other assets1,484,399 2,582,560 2,072,971 6,139,930 368,724 131,996 38,987 272,906 6,952,543 
Goodwill11,836 12,540 5,092 29,468 — — — — 29,468 
Total assets$14,013,826 $7,634,582 $5,447,475 $27,095,883 $10,529,755 $3,091,940 $613,366 $273,171 $41,604,115 
Debt$11,390,069 $3,201,575 $3,779,105 $18,370,749 $9,663,568 $2,392,505 $499,669 $624,435 $31,550,926 
Other liabilities583,220 2,389,688 108,326 3,081,234 (6,108)182,653 746 167,551 3,426,076 
Total liabilities11,973,289 5,591,263 3,887,431 21,451,983 9,657,460 2,575,158 500,415 791,986 34,977,002 
Total equity2,040,537 2,043,319 1,560,044 5,643,900 872,295 516,782 112,951 (518,815)6,627,113 
Noncontrolling interests in equity of consolidated subsidiaries16,134 — 13,283 29,417 — — 41,606 — 71,023 
Total New Residential stockholders’ equity$2,024,403 $2,043,319 $1,546,761 $5,614,483 $872,295 $516,782 $71,345 $(518,815)$6,556,090 
Investments in equity method investees$— $— $103,956 $103,956 $— $— $— $— $103,956 

Origination and ServicingResidential Securities, Properties and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesProperties and Residential Mortgage LoansConsumer LoansCorporateTotal
Three Months Ended September 30, 2020
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$(3,767)$232,599 $222,027 $— $450,859 $— $— $— $— $450,859 
Change in fair value of MSRs and MSR financing receivables— (189,958)(225,381)— (415,339)— — — — (415,339)
Servicing revenue, net(3,767)42,641 (3,354)— 35,520 — — — — 35,520 
Interest income17,407 2,392 25,489 — 45,288 61,034 33,913 29,545 — 169,780 
Gain on originated mortgage loans, held-for-sale, net445,578 18,979 (1,332)25,028 488,253 — — — — 488,253 
Total revenues459,218 64,012 20,803 25,028 569,061 61,034 33,913 29,545 — 693,553 
Interest expense10,977 51,012 8,728 — 70,717 15,652 19,326 5,809 19,024 130,528 
G&A and other136,086 109,147 80,273 — 325,506 930 10,361 3,361 27,706 367,864 
Total operating expenses147,063 160,159 89,001 — 396,223 16,582 29,687 9,170 46,730 498,392 
Change in fair value of investments— — 2,086 — 2,086 50,752 56,940 1,304 — 111,082 
Gain (loss) on settlement of investments, net— (3,873)(7,583)— (11,456)(15,534)(2,230)(4,183)(61,054)(94,457)
Other income (loss), net123 1,563 8,340 — 10,026 1,723 (10,011)(2,361)4,304 3,681 
Total other income (loss)123 (2,310)2,843 — 656 36,941 44,699 (5,240)(56,750)20,306 
Impairment— — — — — (3,849)14,584 — — 10,735 
Income (loss) before income taxes312,278 (98,457)(65,355)25,028 173,494 85,242 34,341 15,135 (103,480)204,732 
Income tax expense (benefit)71,304 16,446 5,280 — 93,030 — 7,783 (1)— 100,812 
Net income (loss)240,974 (114,903)(70,635)25,028 80,464 85,242 26,558 15,136 (103,480)103,920 
Noncontrolling interests in income (loss) of consolidated subsidiaries4,840 — 2,612 — 7,452 — — 4,188 — 11,640 
Dividends on preferred stock— — — — — — — — 14,359 14,359 
Net income (loss) attributable to common stockholders$236,134 $(114,903)$(73,247)$25,028 $73,012 $85,242 $26,558 $10,948 $(117,839)$77,921 
22
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Origination and ServicingResidential Securities, Properties and Loans
OriginationServicingMSR Related Investments
Elimination(A)
Total Servicing and OriginationReal Estate SecuritiesProperties and Residential Mortgage LoansConsumer LoansCorporateTotal
Nine Months Ended September 30, 2020
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$(6,843)$432,960 $963,925 $— $1,390,042 $— $— $— $— $1,390,042 
Change in fair value of MSRs and MSR financing receivables— (785,024)(946,354)— (1,731,378)— — — — (1,731,378)
Servicing revenue, net(6,843)(352,064)17,571 — (341,336)— — — — (341,336)
Interest income43,105 16,280 45,815 — 105,200 278,702 141,118 97,204 — 622,224 
Gain on originated mortgage loans, held-for-sale, net885,730 43,026 5,293 26,102 960,151 — 6,662 — — 966,813 
Total revenues921,992 (292,758)68,679 26,102 724,015 278,702 147,780 97,204 — 1,247,701 
Interest expense30,071 102,319 76,105 — 208,495 141,340 67,570 18,691 27,690 463,786 
G&A and other338,760 240,175 297,946 — 876,881 8,128 46,395 10,947 83,672 1,026,023 
Total operating expenses368,831 342,494 374,051 — 1,085,376 149,468 113,965 29,638 111,362 1,489,809 
Change in fair value of investments— — (14,244)— (14,244)3,682 (108,306)(4,446)— (123,314)
Gain (loss) on settlement of investments, net— (3,873)(12,590)— (16,463)(886,650)(645)(4,183)(61,054)(968,995)
Other income (loss), net497 (1,716)11,534 — 10,315 1,707 (1,945)(7,378)(42,465)(39,766)
Total other income (loss)497 (5,589)(15,300)— (20,392)(881,261)(110,896)(16,007)(103,519)(1,132,075)
Impairment— — — — — 15,166 118,504 — — 133,670 
Income (loss) before income taxes553,658 (640,841)(320,672)26,102 (381,753)(767,193)(195,585)51,559 (214,881)(1,507,853)
Income tax expense (benefit)138,304 (67,019)(55,561)— 15,724 — (64,501)130 — (48,647)
Net income (loss)415,354 (573,822)(265,111)26,102 (397,477)(767,193)(131,084)51,429 (214,881)(1,459,206)
Noncontrolling interests in income (loss) of consolidated subsidiaries10,542 — (44)— 10,498 — — 23,620 — 34,118 
Dividends on preferred stock— — — — — — — — 39,938 39,938 
Net income (loss) attributable to common stockholders$404,812 $(573,822)$(265,067)$26,102 $(407,975)$(767,193)$(131,084)$27,809 $(254,819)$(1,533,262)
(A)Elimination of intercompany transactions primarily relate to loan sales.

Servicing Segment Revenues

The table below summarizes the components of servicing segment revenues:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Base servicing
MSR assets$174,220 $172,906 $477,020 $258,311 
Residential whole loans11,281 4,729 13,518 10,938 
Third party24,245 23,858 77,051 83,468 
209,746 201,493 567,589 352,717 
Other fees
Ancillary and other fees(A)
47,774 31,106 128,554 80,243 
Change in fair value due to:
Realization of cash flows(207,184)(253,670)(610,433)(539,264)
Change in valuation inputs and assumptions and other88,243 63,712 431,803 (245,760)
Total servicing fees$138,579 $42,641 $517,513 $(352,064)
Servicing Data (period end) (in millions)
UPB - MSR assets$385,166 $199,839 $385,166 $199,839 
UPB - Residential whole loans14,898 10,233 14,898 10,233 
UPB - Third party75,768 77,131 75,768 77,131 
(A)Includes incentive, boarding and other fees.
23
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
4.    EXCESS MORTGAGE SERVICING RIGHTS ASSETS

Excess mortgage servicing rights assets include New Residential’s direct investments in Excess MSRs:
  Servicer
  Nationstar 
SLS(A)
 
Ocwen(B)
 Total
Balance as of December 31, 2016 $611,293
 $3,935
 $784,227
 $1,399,455
Purchases —
 —
 —
 —
Interest income 33,837
 (255) 41,656
 75,238
Other income 1,948
 —
 1,993
 3,941
Proceeds from repayments (98,802) (1,215) (95,677) (195,694)
Change in fair value (6,442) 381
 (26,589) (32,650)
Ocwen Transaction (Note 5) —
 —
 (71,982) (71,982)
Balance as of September 30, 2017 $541,834
 $2,846
 $633,628
 $1,178,308

(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 acquired from HLSS.

In July 2017,MSRs and investments in joint ventures jointly controlled by New Residential entered intoand Fortress-managed funds investing in Excess MSRs.

The table below summarizes the Ocwen Transactioncomponents of excess mortgage servicing rights assets as describedpresented on the Consolidated Balance Sheets:
September 30, 2021December 31, 2020
Direct investments in Excess MSRs$270,180 $310,938 
Excess MSR Joint Ventures89,108 99,917 
Excess mortgage servicing rights assets, at fair value$359,288 $410,855 

Direct Investments in Note 5. SubsequentExcess MSRs

The following table presents activity related to the Ocwen Transaction, thecarrying value of direct investments in Excess MSRs formerly serviced by Ocwen become reclassified, as described in Note 5, as the underlying MSRs are transferred to NRM.MSRs:

Servicer
Mr. Cooper
SLS(A)
Total
Balance as of December 31, 2020$309,009 $1,929 $310,938 
Purchases— — — 
Interest income16,315 (127)16,188 
Other income303 (325)(22)
Proceeds from repayments(42,971)(267)(43,238)
Proceeds from sales(20)— (20)
Change in fair value(14,092)426 (13,666)
Balance as of September 30, 2021$268,544 $1,636 $270,180 
Nationstar,(A)Specialized Loan Servicing LLC (“SLS”).

Mr. Cooper or SLS, or Ocwen, 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 NationstarMr. Cooper and SLS. Under such arrangements, New Residential is generally entitled to a pro rata interest in the Excess MSRs on any initial or subsequent refinancing by NationstarMr. Cooper of a loan in the original portfolio. New Residential has a similar recapture

15
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

agreement with Ocwen; however, this agreement allows for Ocwen to retain the Excess MSR on recaptured loans up to a threshold and no payments have been made to New Residential under such arrangement to date. These recapture agreements do not apply to New Residential’s Servicer Advance Investments (Note 6).

New Residential elected to record its 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.

 The following is a summary of New Residential’s direct investments in Excess MSRs:
24
 September 30, 2017 December 31, 2016
 UPB of Underlying Mortgages Interest in Excess MSR 
Weighted Average Life Years(A)
 
Amortized Cost Basis(B)
 
Carrying Value(C)
 
Carrying Value(C)
   
New Residential(D)
 Fortress-managed funds Nationstar        
Agency               
Original and Recaptured Pools$68,449,802
 32.5% - 66.7% (53.3%)
 0.0% - 40.0%
 20.0% - 35.0%
 5.8 $263,374
 $288,345
 $330,323
Recapture Agreements—
 32.5% - 66.7% (53.3%)
 0.0% - 40.0%
 20.0% - 35.0%
 12.6 20,299
 45,504
 51,434
 68,449,802
       6.3 283,673
 333,849
 381,757
                
Non-Agency(E)
               
Nationstar and SLS Serviced:               
Original and Recaptured Pools$67,453,347
 33.3% - 100.0% (59.4%)
 0.0% - 50.0%
 0.0% - 33.3%
 5.3 $160,665
 $191,270
 $219,980
Recapture Agreements—
 33.3% - 100.0% (59.4%)
 0.0% - 50.0%
 0.0% - 33.3%
 12.5 8,352
 19,561
 13,491
Ocwen Serviced Pools92,270,579
 100.0% —% —% 6.0 617,401
 633,628
 784,227
 159,723,926
       5.9 786,418
 844,459
 1,017,698
Total$228,173,728
       6.0 $1,070,091
 $1,178,308
 $1,399,455
(A)Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(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 or recapture agreements, as applicable.
(D)Amounts in parentheses represent weighted averages.
(E)New Residential also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of September 30, 2017 (Note 6) on $145.8 billion UPB underlying these Excess MSRs.

Changes in fair value recorded in other income is comprised of the following:
  Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
  2017 2016 2017 2016
Original and Recaptured Pools
$(12,047) $(15,395) $(41,032) $(28,392)
Recapture Agreements
(2,244) (1,665) 8,382
 3,995
  $(14,291) $(17,060) $(32,650) $(24,397)


16
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

The following is a summary of direct investments in Excess MSRs:
September 30, 2021December 31, 2020
UPB of Underlying MortgagesInterest in Excess MSR
Weighted Average Life Years(A)
Amortized Cost Basis(B)
Carrying Value(C)
Carrying Value(C)
New Residential(D)
Fortress-managed fundsMr. Cooper
Agency
Original and Recaptured Pools$28,418,993 
32.5% - 66.7%
(53.3%)
0.0% - 40%20.0% - 35.0%6.0$125,402 $139,289 $162,645 
Non-Agency(E)
Mr. Cooper and SLS Serviced:
Original and Recaptured Pools32,179,863 
33.3% - 100.0%
(59.4%)
0.0% - 50%0.0% - 33.3%6.698,407 130,891 148,293 
Total$60,598,856 6.3$223,809 $270,180 $310,938 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(D)Amounts in parentheses represent weighted averages.
(E)New Residential is also invested in related Servicer Advance Investments, including the basic fee component of the related MSR as of September 30, 2021 (Note 6) on $21.6 billion unpaid principal balance (“UPB”) underlying these Excess MSRs.

Changes in fair value of investments consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Original and Recaptured Pools$(4,837)$(664)$(13,666)$(11,773)

As of September 30, 2017,2021, a weighted average discount rate of 9.7%7.8% was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees).


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


25
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The following tables summarize the financial results of the Excess MSR joint ventures, accounted for as equity method investees, held by New Residential:investees:
September 30, 2021December 31,
2020
Excess MSR assets$158,916$179,762
Other assets19,98720,759
Other liabilities(687)(687)
Equity$178,216$199,834
New Residential’s investment$89,108$99,917
New Residential’s percentage ownership50.0 %50.0 %
  September 30, 2017 December 31, 2016
Excess MSR assets $329,986
 $372,391
Other assets 21,279
 17,184
Other liabilities —
 —
Equity $351,265
 $389,575
New Residential’s investment $175,633
 $194,788
     
New Residential’s ownership 50.0% 50.0%


Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Interest income$261 $12,249 $6,500 $20,099 
Other income (loss)(2,605)(13,027)(3,634)(25,879)
Expenses(8)(8)(24)(24)
Net income (loss)$(2,352)$(786)$2,842 $(5,804)

  Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
  2017 2016 2017 2016
Interest income $6,969
 $12,205
 $20,083
 $24,526
Other income (loss) (2,843) 339
 (7,908) (7,244)
Expenses (18) (22) (63) (66)
Net income $4,108
 $12,522
 $12,112
 $17,216

New Residential’sThe following table summarizes the activity of investments in equity method investees changed during the nine months ended September 30, 2017 as follows:investees:
Balance at December 31, 2020$99,917 
Distributions of capital from equity method investees(12,230)
Change in fair value of investments in equity method investees1,421 
Balance at September 30, 2021$89,108 
Balance at December 31, 2016$194,788
Contributions to equity method investees—
Transfers to direct ownership—
Distributions of earnings from equity method investees(11,054)
Distributions of capital from equity method investees(14,157)
Change in fair value of investments in equity method investees6,056
Balance at September 30, 2017$175,633


The following is a summary of New Residential’s Excess MSR investments made through equity method investees:
September 30, 2021
Unpaid Principal Balance
Investee Interest in Excess MSR(A)
New Residential Interest in Investees
Amortized Cost Basis(B)
Carrying Value(C)
Weighted Average Life (Years)(D)
Agency
Original and Recaptured Pools$24,230,726 66.7 %50.0 %$119,814 $158,916 5.7
(A)The remaining interests are held by Mr. Cooper.
(B)Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. The amortized cost basis of the recapture agreements is determined based on the relative fair values of the recapture agreements and related Excess MSRs at the time they were acquired.
(C)Represents the carrying value of the Excess MSRs held in equity method investees, in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools and recapture agreements, as applicable.
(D)Represents the weighted average expected timing of the receipt of cash flows of each investment.

26
 September 30, 2017
 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$53,675,234
 66.7% 50.0% $221,830
 $279,722
 5.8
Recapture Agreements—
 66.7% 50.0% 24,827
 50,264
 12.5
Total$53,675,234
     $246,657
 $329,986
 6.4

17
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

(A)The remaining interests are held by Nationstar.
(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 or recapture agreements, as applicable.
(D)The weighted average life represents the weighted average expected timing of the receipt of cash flows of each investment.

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments:
  Aggregate Direct and Equity Method Investees
  Percentage of Total Outstanding Unpaid Principal Amount
State Concentration September 30, 2017 December 31, 2016
California 24.1% 24.1%
Florida 8.6% 8.6%
New York 8.3% 7.9%
Texas 4.6% 4.6%
New Jersey 4.1% 4.2%
Maryland 3.7% 3.7%
Illinois 3.6% 3.5%
Georgia 3.1% 3.1%
Virginia 3.0% 3.1%
Massachusetts 2.7% 2.7%
Pennsylvania 2.5% 2.5%
Arizona 2.5% 2.5%
Other U.S. 29.2% 29.5%
  100.0% 100.0%

Geographic concentrations of investments expose New Residential to the risk of economic downturns within the relevant states. Any such downturn in a state where New Residential holds significant investments could affect the underlying borrower’s ability to make mortgage payments and therefore could have a meaningful, negative impact on the Excess MSRs.

See Note 11 regarding the financing of Excess MSRs.

5. INVESTMENTS IN    MORTGAGE SERVICING RIGHTS AND MORTGAGE SERVICING RIGHTSMSR FINANCING RECEIVABLERECEIVABLES

Mortgage Servicing Rights

In 2016, a subsidiary of New Residential, New Residential Mortgage LLC (“NRM”), became a licensed mortgage servicer. NRM is presently licensed or otherwise eligible to hold MSRs in all states within the United States and the District of Columbia. Additionally, NRM has received approval from the Federal Housing Administration (“FHA”) to hold MSRs associated with FHA-insured mortgage loans, from the Federal National Mortgage Association (“Fannie Mae”) to hold MSRs associated with loans owned by Fannie Mae, and from the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to hold MSRs associated with loans owned by Freddie Mac. Fannie Mae and Freddie Mac are collectively referred to as the Government Sponsored Enterprises (“GSEs”). As an approved Fannie Mae Servicer, Freddie Mac Servicer and FHA-approved mortgagee, NRM is required to conduct aspects of its operations in accordance with applicable policies and guidelines published by FHA, Fannie Mae and Freddie Mac in order to maintain those approvals. As of September 30, 2017, NRM is in compliance with such policies and guidelines, as well as with other ongoing requirements applicable to mortgage loan servicers under applicable state and federal laws. NRM engages

18
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

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 Condensed Consolidated Statements of Income. As of September 30, 2017, these subservicers include Ditech, Nationstar, PHH, Citi, Ocwen, Flagstar, and United Shore, which subservice 29.1%, 27.6%, 21.2%, 13.8%, 6.4%, 1.1%, and 0.8% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing Rights and Mortgage Servicing Rights Financing Receivable).

New Residential has entered into recapture agreements with respect to each of its MSR investments subserviced by Ditech (defined below) and Nationstar. Under the recapture agreements, New Residential is generally entitled to the MSRs on any initial or subsequent refinancing by Ditech or Nationstar of a loan in the original portfolios.

Walter Flows MSRs

On August 8, 2016, NRM entered into a flow and bulk agreement for the purchase and sale of mortgage servicing rights (the “Walter Purchase Agreement”) with Ditech Financial LLC (“Ditech”), a subsidiary of Walter Investment Management Corp. During the nine months ended September 30, 2017, pursuant to the Walter Purchase Agreement, NRM purchased Walter Flow MSRs with respect to certain Fannie Mae residential mortgage loans with a total UPB of $6.8 billion for a purchase price of approximately $54.9 million. Ditech will subservice the related residential mortgage loans.

Citi Transaction

On January 27, 2017, NRM entered into an agreement with CitiMortgage, Inc. (“Citi”) to purchase the MSRs and related servicer advances receivable (the “Citi Purchase Agreement”) with respect to a pool of seasoned Fannie Mae and Freddie Mac residential mortgage loans with approximately $92.5 billion in total UPB for a purchase price of approximately $906.0 million, with a purchase price holdback of approximately $45.3 million. The purchase of the MSRs settled in March 2017, with the purchase of the related advances to follow at the time of the operational servicing transfers from Citi to Nationstar.

United Shore Transaction

On January 31, 2017, NRM entered into an agreement with United Shore Financial Services, LLC (“United Shore”) to purchase the MSRs and related servicer advances receivable with respect to a pool of existing Fannie Mae and Freddie Mac residential mortgage loans with approximately $9.8 billion in total UPB for a purchase price of approximately $94.8 million, with a purchase price holdback of approximately $9.5 million. The purchase settled in February 2017, and subservicing transferred to Nationstar during March and April 2017. On August 8, 2017, NRM entered into an agreement with United Shore to purchase the MSRs and related servicer advances receivable with respect to a pool of existing Fannie Mae and Freddie Mac residential mortgage loans with approximately $2.1 billion in total UPB for a purchase price of approximately $19.7 million, with a purchase price holdback of approximately $2.0 million. The purchase settled in August 2017. The transfer of subservicing to Nationstar began in October 2017, and United Shore has agreed to continue to subservice the remainder of the portfolio on an interim basis.

RCS Transaction

On February 17, 2017, NRM entered into an agreement with Residential Credit Solutions, Inc. (“RCS”) to purchase the MSRs and related servicer advances receivable with respect to a pool of existing Fannie Mae and Freddie Mac residential mortgage loans with approximately $5.2 billion in total UPB for a purchase price of approximately $48.6 million and $1.3 million, respectively, with a purchase price holdback of approximately $4.9 million. The purchase included multiple settlement dates in February and March 2017. Ditech subservices the related residential mortgage loans.

Subservicing Agreements

On January 27, 2017, NRM entered into agreements pursuant to which Nationstar will subservice certain MSR portfolios on behalf of NRM, subject to GSE and other regulatory approvals. In March 2017 and April 2017, subservicing duties for a portion of the residential mortgage loans related to the FirstKey Transaction and Citi Transaction, respectively, were transferred to Nationstar from FirstKey and Citi, respectively. On May 16, 2017, NRM entered into a subservicing agreement with Flagstar Bank, FSB (“Flagstar”). Flagstar was the predecessor subservicer of the remaining portion of the residential mortgage loans related to the FirstKey Transaction. The subservicing duties transferred to Flagstar in May 2017. As of September 30, 2017, subservicing for $49.9 billion UPB related to the Citi Transaction has transferred to Nationstar.


19
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

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

Servicing revenue, net recognized by New Residential related to its investments in MSRs was comprised of the following:
 Three Months Ended September 30, 2017 Nine Months Ended 
 September 30, 2017
Servicing fee revenue$113,741
 $299,642
Ancillary and other fees24,641
 51,811
Servicing fee revenue and fees138,382
 351,453
Amortization of servicing rights(68,850) (159,451)
Change in valuation inputs and assumptions(11,518) 77,465
Servicing revenue, net$58,014
 $269,467


The following table presents activity related to the carrying value of New Residential’s investments in MSRs:MSRs and MSR Financing Receivables:
Balance as of December 31, 2016 $659,483
Purchases 1,125,252
Amortization of servicing rights(A)
 (159,451)
Change in valuation inputs and assumptions 77,465
Balance as of September 30, 2017 $1,702,749

(A)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.

The following is a summary of New Residential’s investments in MSRs as of September 30, 2017:
 UPB of Underlying Mortgages 
Weighted Average Life (Years)(A)
 Amortized Cost Basis 
Carrying Value(B)
Agency$177,220,692
 6.4 $1,521,605
 $1,702,749
Non-Agency64,733
 5.8 —
 —
Total$177,285,425
 6.4 $1,521,605
 $1,702,749

(A)Balance as of December 31, 2020Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.$4,585,841 
Caliber acquisition (Note 1)1,507,524 
Purchases, net(A)
7,965 
Originations(B)
Carrying Value represents878,190 
Proceeds from sales(42,075)
Change in fair value. Asvalue due to:
    Realization of cash flows(C)
(928,646)
    Change in valuation inputs and assumptions573,556 
    (Gain) loss realized(17,088)
Balance at September 30, 2017, a weighted average discount rate of 9.8% was used to value New Residential’s investments in MSRs.2021$6,565,267 


(A)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.    
(B)Represents MSRs retained on the sale of originated mortgage loans.
(C)Based on the paydown of the underlying residential mortgage loans.

Servicing Revenue, Net consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$384,953 $404,373 $1,069,544 $1,249,504 
Ancillary and other fees13,692 46,486 98,887 140,538 
Servicing fee revenue and fees398,645 450,859 1,168,431 1,390,042 
Change in fair value due to:
Realization of cash flows(A)
(287,318)(509,624)(924,766)(1,135,515)
Change in valuation inputs and assumptions(B)
147,233 97,832 573,213 (598,226)
Change in fair value of derivative instruments(41,365)— (41,564)— 
(Gain) loss realized(739)(3,547)(17,088)2,363 
Gain (loss) on settlement of derivative instruments(13,434)—(11,127)— 
Servicing revenue, net$203,022 $35,520 $747,099 $(341,336)
(A)Includes $1.3 million and $2.4 million of fair value adjustment due to realization of cash flows to Excess spread financing for the three months ended September 30, 2021 and 2020, respectively, and $3.9 million and $6.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(B)Includes $1.3 million and $0.2 million of fair value adjustment to Excess spread financing for the three months ended September 30, 2021 and 2020, respectively, and $0.3 million and $6.2 million for the nine months ended September 30, 2021 and 2020, respectively.
20
27
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 


Mortgage Servicing Rights Financing Receivable

PHH Transaction

On December 28, 2016, NRM entered into an agreement with PHH Mortgage Corporation and its subsidiaries (“PHH”) to purchase theThe following is a summary of MSRs and related servicer advances receivables with respect to approximately $60.5 billion in total UPB of seasoned Agency and private-label residential mortgage loans for a purchase price of approximately $502.7 million and $218.2 million, respectively. $13.2 billion and $40.8 billion of UPB closed in the second and third quarter of 2017, respectively, and the remainder is expected to close in the fourth quarter of 2017, subject to GSE and other regulatory approvals, various consents and approvals from third-parties, and other customary closing conditions. Concurrently with the purchase agreement, NRM entered into a subservicing agreement with PHH, pursuant to which PHH Mortgage, a wholly owned subsidiary of PHH, subservices the residential mortgage loans underlying the MSRs acquired by NRM for an initial term of three years, subject to certain conditions. New Residential has entered into a recapture agreement with respect to each of its MSR investments subserviced by PHH. Under the recapture agreement, New Residential is generally entitled to the MSRs on any initial or subsequent refinancing by PHH of a loan in the original portfolio.

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 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. Therefore, rather than recording an investment in MSRs, New Residential has recorded an investment in mortgage servicing rights financing receivable. Income from this investment (net of subservicing fees) is recorded as interest income, and New 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 receivable in the Condensed Consolidated Statements of Income.

Ocwen Transaction

On July 23, 2017, New Residential entered into a series of agreements with Ocwen that supersede the arrangements among the parties set forth in (i) the Master Servicing Rights Purchase Agreement, dated as of October 1, 2012, as amended by Amendment No. 1 to Master Servicing Rights Purchase Agreement and Sale Supplements, dated as of December 26, 2012, and Amendment No. 2 to Master Servicing Rights Purchase Agreement and Sale Supplements, dated as of April 6, 2015 (as so amended, the “Existing Ocwen MSR Purchase Agreement”), and (ii) certain sale supplements to the Existing Ocwen MSR Purchase Agreement, as amended by Amendment No. 1 to Master Servicing Rights Purchase Agreement and Sale Supplements, dated as of December 26, 2012, Amendment to Sale Supplements dated as of July 1, 2013, Amendment to Sale Supplement, datedFinancing Receivables as of September 30, 2013, Amendment2021:
UPB of Underlying Mortgages
Weighted Average Life (Years)(A)
Carrying Value(B)
Agency$374,945,577 5.9$4,273,376 
Non-Agency68,903,562 8.0966,051 
Ginnie Mae(C)
105,975,422 5.41,325,840 
Total$549,824,561 6.1$6,565,267 
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying value represents fair value. As of September 30, 2021, weighted average discount rates of 7.4% (range 6.9% - 12.5%) were used to Sale Supplements, datedvalue New Residential’s MSRs and MSR Financing Receivables.
(C)As of September 30, 2021, New Residential holds approximately $1.8 billion in residential mortgage loans subject to repurchase and the related residential mortgage loans repurchase liability on its Consolidated Balance Sheets.

Residential Mortgage Loans Subject to Repurchase

New Residential, through its wholly owned subsidiaries as approved issuers of February 4, 2014, Amendment No. 2Ginnie Mae MBS, originates and securitizes government-insured residential mortgage loans. As the issuer of the Ginnie Mae-guaranteed securitizations, New Residential has the unilateral right to Master Servicing Rights Purchase Agreementrepurchase loans from the securitizations when they are delinquent for more than 90 days. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. Under GAAP, New Residential is required to recognize the right to loans on its balance sheet and Sale Supplements, dated asestablish a corresponding liability upon the triggering of April 6, 2015,the repurchase right regardless of whether the Company intends to repurchase the loans. As of September 30, 2021, New Residential holds approximately $1.8 billion in residential mortgage loans subject to repurchase and February Amendment, dated asresidential mortgage loans repurchase liability on its Consolidated Balance Sheets. New Residential may re-pool repurchased loans into new Ginnie Mae securitizations upon re-performance of February 17, 2017 (as so amended, the “Existing Ocwen Sale Supplements” and, together withloan or otherwise sell to third-party investors. The Company does not change the Existing accounting for MSRs related to previously sold loans upon recognizing loans eligible for repurchase. Rather, upon repurchase of a loan, the MSR is written off. As of September 30, 2021, New Residential holds approximately $1,082.9 million of repurchased residential mortgage loans on its Consolidated Balance Sheets.

Ocwen MSR Purchase Agreement, the “Existing Ocwen Agreements”). These transactions (collectively, the “Ocwen Transaction”) are described in further detail below.Financing Receivable Transactions


In addition, pursuant to a Transaction Agreement dated July 23, 2017, New Residential acquired from Ocwen in a private placement 6,075,510 shares of Ocwen common stock, par value $0.01 per share, at a price per share of $2.29, for approximately $13.9 million (Note 2).

On July 23, 2017, Ocwen Loan Servicing, LLC (collectively with certain affiliates, “Ocwen”) and New Residential entered into a Master Agreement (the “Ocwen Master Agreement”) and a Transfer Agreement (the “Ocwen Transfer Agreement”) pursuant toan agreement in which Ocwen and New Residentialboth parties agreed to undertake certain actions to facilitate the transfer from Ocwen to New Residential of Ocwen’s remaining interests in the mortgage servicing rightsMSRs relating to loans with an aggregate unpaid principal balance of approximately $110.0 billion that are subject to the Existing Ocwen Agreements (the “Ocwen Subject MSRs”) and with respect to which New Residential holds the already held certain rights (“Rights to MSRs (as defined in the Existing Ocwen Agreements)MSRs”).

The Ocwen Master Agreement provides for, among other things, the following:

The parties will cooperate to obtain any third party consents required to transfer Ocwen’s remaining interests in the Ocwen Subject MSRs to New Residential.
Upon obtaining the required third party consents and each Ocwen Subject MSR ceasing to be a Deferred Servicing Agreement (as defined in the Existing Ocwen Agreements) covered under the Existing Ocwen Agreements, New Residential will make a lump sum payment to Ocwen. These lump sum payments may total up to approximately $400.0 million in the aggregate if all of the Ocwen Subject MSRs are transferred to New Residential.

21
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

Upon transfer, Ocwen will subservice the mortgage loans related to such Ocwen Subject MSRs pursuant to the Ocwen Subservicing Agreement (as defined below).
In the event that the required third party consents are not obtained within one year (by July 23, 2018) or such earlier date mutually agreed to by the parties, the applicable Ocwen Subject MSRs may (i) become subject to a new mortgage servicing rights agreement to be negotiated between Ocwen and New Residential (ii) be acquired by Ocwen at a price determined in accordance with the terms of the Ocwen Master Agreement, (iii) be sold to one or more third parties in accordance with the terms of the Ocwen Master Agreement, or (iv) remain subject to the Existing Ocwen Agreements.
New Residential agrees to up to an eighteen month standstill (until January 23, 2019), subject to certain conditions, of its rights with respect to certain Ocwen Subject MSRs under the Existing Ocwen Agreements to replace Ocwen as named servicer upon the occurrence of certain specified termination events. New Residential will permanently waive such rights if a specified percentage of the Ocwen Subject MSRs have been transferred to NRM or are not otherwise subject to the Existing Ocwen Agreements before the end of the period contemplated by the Ocwen Master Agreement.
The resolution of certain payment obligations by New Residential and Ocwen under the terms of the Existing Ocwen Agreements.

Pursuant to the Ocwen Transfer Agreement, Ocwen agreed to transfer its legal title and any other remaining interest in certain mortgage servicing rights to New Residential upon satisfaction of customary conditions precedent. The Ocwen Transfer Agreement contains customary representations, warranties, covenants and indemnification obligations of Ocwen as transferor of the Ocwen Subject MSRs.

On July 23, 2017, New Residential and Ocwenconcurrently entered into a subservicing agreement (the “Ocwen Subservicing Agreement”) pursuant to which Ocwen willagreed to subservice the mortgage loans related to the Ocwen Subject MSRs that arewere transferred to New Residential.

In January 2018, Ocwen sold and transferred to New Residential pursuantcertain “Rights to MSRs” and other assets related to mortgage servicing rights for loans with an unpaid principal balance of approximately $86.8 billion. PHH (as successor by merger to Ocwen) will continue to service the mortgage loans related to the Ocwen Master AgreementMSRs until any necessary third-party consents to transferring the MSRs are obtained and Ocwen Transfer Agreement. The Ocwen Subservicing Agreement contains customary representations, warranties, covenantsall other conditions to transferring the MSRs are satisfied.

Of the “Rights to MSRs” sold and indemnification obligations of Ocwen as subservicertransferred to NRM and prior servicer. In consideration for subservicing such mortgage loans, Ocwen will receive a fixed subservicing feeNewrez, consents and certainall other customary ancillary compensation as set forth in the Ocwen Subservicing Agreement. The initial term of the Ocwen Subservicing Agreement is five years. At any time during the initial term, New Residential may terminate the agreement for convenience, subjectconditions to Ocwen’s right to receive a termination fee (amortizing monthly during the initial term) and proper notice. Following the initial term, New Residential may extend the term of the Ocwen Subservicing Agreement for additional threemonth periods by delivering written notice to Ocwen of its desire to extend such contract thirty days prior to the end of such three month period. Furthermore, at any time following the initial term, the Ocwen Subservicing Agreement may be canceled by Ocwen at the end of each twelve month period following the initial term by delivering proper notice. In addition, New Residential and Ocwen eachtransfer have the ability to terminate the agreement for cause if certain events specified in the Ocwen Subservicing Agreement occur. If either New Residential or Ocwen terminates the agreement for cause, the other party is required to pay certain fees and costs as set forth in the agreement. If New Residential exercises an early termination provision in a securitization transaction during the initial term and elects not to retain Ocwen as servicer following such early terminationbeen received with respect to approximately $66.7 billion UPB of underlying loans. Although legally sold and entitled to the related mortgage loans, New Residential may be required to pay an exit fee to Ocwen (which decreases monthly duringeconomics of the initial term). The subservicing fees payable by New Residential to Ocwen under the Ocwen Subservicing Agreement are expected to be less than the fees that would have been payable by New Residential under the Existing Ocwen Agreements.

Astransfer, as of September 30, 2017,2021, with respect to MSRs representing approximately $15.5$14.4 billion UPB of underlying loans, have been transferred pursuant to the Ocwen Transaction, and MSRs representing approximately $92.3 billion UPB of underlying loans remain to be transferred (after paydowns and other factors). Through September 30, 2017, $54.6 million of related lump sum payments have been made or accrued by New Residential to Ocwen. Upon transfer, any interests already held by New Residential are reclassified (from Excess MSRs or Servicer Advance Investments) to become part of the basis of the MSR financing receivable held by NRM. As a result of the length of the initial term of the related subservicing agreement between NRM and Ocwen, although the MSRs were legally sold, solelyit was determined 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,Newrez and that the purchase agreement wouldtherefore are not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, New Residential has recorded an investment in mortgage servicing rightsGAAP and are classified as MSR financing receivable. Income from this investment (net of subservicing fees) is recorded as interest income, and New 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 receivable in the Condensed Consolidated Statements of Income.receivables.

On August 28, 2017, New Residential Sales Corp. (together with any other future licensed real estate brokerage subsidiary of New Residential, “NRZ Brokerage”), a licensed real estate brokerage subsidiary of New Residential, entered into a Cooperative Brokerage Agreement (the “Altisource Brokerage Agreement”) with REALHome Services and Solutions, Inc. and REALHome


22
28
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

Services and Solutions - CT, Inc. (collectively, “RHSS”), two licensed real estate brokerage subsidiaries of Altisource Portfolio Solutions S.A. (together with its subsidiaries, “Altisource”). Under the Altisource Brokerage Agreement, RHSS will exclusively provide marketing and listing services for REO properties included in certain MSR portfolios acquired, or to be acquired, by New Residential, including (i) an approximately $110 billion UPB (as of June 30, 2017) non-agency MSR portfolio that New Residential agreed to acquire from certain subsidiaries of Ocwen in July 2017 and certain other Ocwen-owned portfolios if New Residential were to acquire these portfolios from Ocwen in the future (collectively, the “Ocwen Portfolio”), and (ii) an approximately $6 billion UPB (as of June 30, 2017) non-agency MSR portfolio that New Residential agreed to acquire from certain subsidiaries of PHH in December 2016 (the “PHH Portfolio” and, together with the Ocwen Portfolio, the “Covered Portfolios”). Pursuant to the Altisource Brokerage Agreement, RHSS will begin to receive REO referrals from NRZ Brokerage as the Covered Portfolios are transferred to one or more subsidiaries of New Residential, subject to PHH Corporation’s approval of Altisource as a vendor in the case of the PHH Portfolio. NRZ Brokerage will receive a referral commission for each REO property sold by RHSS on behalf of New Residential for which RHSS receives a commission under the Altisource Brokerage Agreement. The Altisource Brokerage Agreement, which extends through August 2025, establishes a direct relationship between the brokerages, irrespective of New Residential’s subservicer.

On August 28, 2017, RHSS and Altisource also entered into a letter agreement with New Residential (the “Altisource Letter Agreement”), which provides for New Residential to directly appoint RHSS (or another real estate brokerage subsidiary designated by Altisource) to perform the real estate brokerage services with respect to REO properties in the Covered Portfolios, subject to certain specified exceptions, in the event that NRZ Brokerage does not refer the business to RHSS and in which case the designated Altisource brokerage subsidiary would retain the seller’s brokerage commission.
Concurrently with the Altisource Brokerage Agreement and the Altisource Letter Agreement, Altisource executed a letter of intent with New Residential to enter into a services agreement  (the “Altisource Services LOI”).  Under the anticipated services agreement, to the extent allowable by law and other applicable contractual requirements, Altisource would provide certain fee-based services with respect to the Ocwen Portfolio, also through August 31, 2025. Pursuant to the Altisource Services LOI, the parties have agreed to negotiate in good faith toward the execution of a services agreement through and until January 12, 2018 (such period, including as extended, the “Standstill Period”). Pursuant to the Altisource Services LOI, the parties have also agreed to meet, within ninety (90) days from the date of the Altisource Services LOI, to discuss opportunities for Altisource to perform certain fee-based services unrelated to the Ocwen Portfolio.  These services include, without limitation, REO management, REO liquidations, due diligence, valuations, title services and closing services. New Residential has agreed to consider, in good faith, any proposals submitted by Altisource at or following such meeting, provided that Altisource satisfies applicable legal and regulatory requirements and specified conditions relating to the quality and cost of such services. New Residential has further agreed to introduce Altisource to its subservicers and facilitate introductory discussions regarding potential opportunities for its subservicers to engage Altisource as a service provider. Except for certain specified commitments, including those described above, all of the terms of the Altisource Services LOI are non-binding. There can be no assurance that the parties will reach an agreement with respect to the terms of a services agreement or that a services agreement will be entered into on a timely basis or at all.
RHSS has the right to terminate the Altisource Brokerage Agreement and the Altisource Letter Agreement upon ninety (90) days’ notice (which period may be shortened by New Residential) if a services agreement is not signed between Altisource and New Residential during the Standstill Period. The Altisource Brokerage Agreement may otherwise only be terminated upon the occurrence of certain specified events. The Altisource Brokerage Agreement also includes standard vendor oversight and audit rights and reporting requirements. New Residential has agreed that, during such notice period and/or the Standstill Period, it will not replace or reduce the role of Altisource as a service provider with respect to transferred MSRs in the Ocwen Portfolio.

Interest income from investments in mortgage servicing rights financing receivable was comprised of the following:
 Three Months Ended September 30, 2017 Nine Months Ended 
 September 30, 2017
Servicing fee revenue$38,510
 $41,185
Ancillary and other fees4,327
 4,402
Less: subservicing expense(11,139) (11,433)
Interest income, investments in mortgage servicing rights financing receivable$31,698
 $34,154


23
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, exceptand per share data) 

Change in fair value of investments in mortgage servicing rights financing receivable was comprised of the following:
 Three Months Ended September 30, 2017 Nine Months Ended 
 September 30, 2017
Amortization of servicing rights$(18,883) $(20,010)
Change in valuation inputs and assumptions89,115
 95,838
Change in fair value of investments in mortgage servicing rights financing receivable$70,232
 $75,828

The following table presents activity related to the carrying value of New Residential’s investments in mortgage servicing rights financing receivable:
Balance as of December 31, 2016 $—
Investments made 467,118
Ocwen Transaction (Note 5) 64,450
Amortization of servicing rights(A)
 (20,010)
Change in valuation inputs and assumptions 95,838
Balance as of September 30, 2017 $607,396

(A)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.

The following is a summary of New Residential’s investments in mortgage servicing rights financing receivable as of September 30, 2017:
 UPB of Underlying Mortgages 
Weighted Average Life (Years)(A)
 Amortized Cost Basis 
Carrying Value(B)
Agency$51,533,451
 5.6 $447,925
 $473,669
Non-Agency15,519,498
 5.8 63,633
 133,727
Total$67,052,949
 5.6 $511,558
 $607,396

(A)Weighted Average Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Carrying Value represents fair value. As of September 30, 2017, a weighted average discount rate of 10.4% was used to value New Residential’s investments in mortgage servicing rights financing receivable.


24
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the investments in MSRs and mortgage servicing rights financing receivable:MSR Financing Receivables:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationSeptember 30, 2021December 31, 2020
California18.4 %21.2 %
Florida8.5 %7.4 %
Texas6.1 %5.6 %
New York6.1 %7.0 %
Washington5.4 %2.9 %
New Jersey4.6 %4.8 %
Illinois3.4 %3.6 %
Virginia3.4 %2.9 %
Maryland3.3 %3.1 %
Colorado3.0 %2.8 %
Other U.S.37.8 %38.7 %
100.0 %100.0 %
  Percentage of Total Outstanding Unpaid Principal Amount
State Concentration September 30, 2017 December 31, 2016
California 19.0% 20.5%
New York 6.3% 2.8%
Florida 6.0% 7.3%
Texas 5.7% 6.3%
New Jersey 5.2% 4.5%
Illinois 4.1% 4.1%
Massachusetts 3.8% 4.1%
Michigan 3.6% 3.1%
Pennsylvania 3.3% 2.9%
Virginia 3.1% 2.8%
Other U.S. 39.9% 41.6%
  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 mortgage servicing right asset and, therefore, is not recognized on New Residential’s Consolidated Balance Sheets. The UPB of residential mortgage loans subserviced for others as of September 30, 2021 and 2020 was $75.8 billion and $77.1 billion, respectively. New Residential earned subservicing revenue of $123.7 million and $138.6 million for the nine months ended September 30, 2021 and 2020, respectively, related to subserviced loans which is included within Servicing Revenue, Net and Interest Income from MSR Financing Receivables in the Consolidated Statements of Income.

NRM engages third party licensed mortgage servicers as subservicers and, in relation to certain MSR purchases, including to perform the operational servicing duties, including recapture activities, in connection with the MSRs it acquires, in exchange for a subservicing fee which is recorded as Subservicing Expense and reflected as part of General and Administrative Expenses in New Residential’s Consolidated Statements of Income. As of September 30, 2021, these subservicers include PHH, Mr. Cooper, LoanCare, and Flagstar, which subservice 10.8%, 9.9%, 8.9% and 0.4% of the MSRs held by New Residential. The remaining 70.0% of the underlying UPB of the related mortgages is subserviced by Newrez and Caliber (Note 1 to our Consolidated Financial Statements).


29
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 

Servicer Advances Receivable

In addition to receiving cash flows fromconnection with New Residential’s ownership of MSRs, the MSRs, NRM as servicer hasCompany assumes the obligation to serve as a liquidity provider to initially fund future servicer advances on the underlying pool of mortgages (Note 14).15) it services. These servicer advances are recorded when advanced and are included in Servicer Advances Receivable.Receivable on the Consolidated Balance Sheets.


The following types of advances are included in the Servicer Advances Receivable:
September 30, 2021December 31, 2020
Principal and interest advances$592,212 $665,538 
Escrow advances (taxes and insurance advances)1,414,507 1,547,796 
Foreclosure advances801,466 816,400 
Total(A)(B)(C)
$2,808,185 $3,029,734 
(A)Includes $555.9 million and $583.9 million of servicer advances receivable related to Agency MSRs, respectively, recoverable either from the borrower or the Agencies.
(B)Includes $183.0 million and $181.2 million of servicer advances receivable related to Ginnie Mae MSRs, respectively, recoverable from either the borrower or Ginnie Mae. Expected losses for advances associated with Ginnie Mae loans in the MSR portfolio are considered in the MSR fair valuation through a nonreimbursable advance loss assumption.
(C)Excludes $25.6 million and $27.5 million, respectively, in unamortized advance discount and reserves, net of accruals for advance recoveries. These reserves relate to inactive loans in the foreclosure or liquidation process.

New Residential’s Servicer Advances Receivable related to Non-Agency MSRs generally have the highest reimbursement priority pursuant to the underlying servicing agreements (i.e., “top of the waterfall”) and New Residential is generally entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. Furthermore, to the extent that advances are not recoverable by New Residential as a result of the subservicer’s failure to comply with applicable requirements in the relevant servicing agreements, New Residential has a contractual right to be reimbursed by the subservicer. For advances on loans that have been liquidated, sold, paid in full or modified, the Company has reserved $34.6 million and $22.9 million for expected non-recovery of advances as of September 30, 2021 and December 31, 2020, respectively.

The following table summarizes servicer advances reserve:
Balance at December 31, 2020$22,852 
Caliber acquisition (Note 1)15,068 
Provision9,340 
Transfers and Other(10,961)
Write-offs(1,663)
Balance at September 30, 2021$34,636 

See Note 11 regarding the financing of MSRs.MSRs and Servicer Advances Receivable.



6.6.    SERVICER ADVANCE INVESTMENTS
In December 2013,
New Residential and third-party co-investors, through a joint venture entity (Advance Purchaser LLC, the “Buyer”) consolidated by New Residential, purchased theResidential’s Servicer Advance Investments consist of arrangements to fund existing outstanding servicer advances related to a portfolio of residential mortgage loans that is serviced by Nationstar and is a subset of the same portfolio of loans in which New Residential has invested in a portion of the Excess MSRs (Note 4), including the basic fee component of the related MSRs. In August 2017, New Residential purchased an additional 27.0% interest in the Buyer from third-party co-investors for an aggregate purchase price of $65.9 million. A taxable wholly-owned subsidiary of New Residential is the managing member of the Buyer and owned an approximately 72.8% interest in the Buyer as of September 30, 2017. As of September 30, 2017, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $389.6 million and New Residential has funded capital commitments to the Buyer of $312.7 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of September 30, 2017, the third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $308.3 million and $252.7 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 Nationstar, is requiredrequirement to purchase all future servicer advances made with respect to this portfolioa specified pool of residential mortgage loans from Nationstar, and receives cash flows from advance recoveries andin exchange for the basic fee component of the related MSRs, net of compensation paid back to Nationstar in consideration of Nationstar’s servicing activities. The compensation paid to Nationstar as of September 30, 2017 was approximately 9.3% 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.

25
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 


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 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 advances, and the related basic fee portion of the MSR, and Excess MSRs in connection with the HLSS Acquisition. Ocwen services the underlying loans in exchange for a servicing fee of 12% times the servicing fee collections of the underlying loans, which as of September 30, 2017 is equal to 6.0 basis points times the UPB of the underlying loans, and an incentive fee which is 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 5. Subsequent to the Ocwen Transaction, the Servicer Advance Investments (including the related basic fee portion of the MSR) formerly serviced by Ocwen become reclassified, as described in Note 5, as the underlying MSRs are transferred to NRM.

In connection with the HLSS Acquisition, New Residential acquired from Ocwen the call rights related to the residential mortgage loans underlying the Excess MSRs and Servicer Advance Investments, acquired from HLSS. New Residential continues to evaluate the call rights it acquired from Nationstar, SLS and Ocwen, and its ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. The actual UPB of the residential mortgage loans on which New Residential can successfully exercise call rights and realize the benefits therefrom may differ materially from its initial assumptions.

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, 2020. In July 2021, New
30
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Residential entered into a purchase and sales agreement with certain third-party co-investors whereby New Residential agreed to purchase from certain third-party co-investments approximately 16.1% of aggregate interest in the Buyer, increasing New Residential’s ownership of the Buyer to approximately 89.3% as of September 30, 2021. The Buyer is a limited liability company which was established in December 2013 for the purpose of investing in residential mortgage related advances. As of September 30, 2021, third-party co-investors, owning the remaining interest in the Buyer, have funded capital commitments to the Buyer of $75.0 million and New Residential has funded capital commitments to the Buyer of $627.4 million. The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of September 30, 2021, the noncontrolling third-party co-investors and New Residential had previously funded their commitments; however, the Buyer may recall $69.0 million and $577.1 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.
 
The following is a summary of New Residential’s Servicer Advance Investments, including the right to the basic fee component of the related MSRs:
Amortized Cost Basis
Carrying Value(A)
Weighted Average Discount RateWeighted Average Yield
Weighted Average Life (Years)(B)
September 30, 2021
Servicer advance investments$453,442 $472,004 5.2 %5.6 %6.0
December 31, 2020
Servicer advance investments$512,958 $538,056 5.2 %5.7 %6.0
 Amortized Cost Basis
Carrying Value(A)

Weighted Average Discount Rate Weighted Average Yield
Weighted Average Life (Years)(B)
September 30, 2017         
Servicer Advance Investments(C)
$3,955,375
 $4,044,802
 6.8% 7.2% 5.1
As of December 31, 2016         
Servicer Advance Investments(C)
$5,687,635
 $5,706,593
 5.6% 5.5% 4.6
(A)Carrying value represents the fair value of the servicer advance investments, including the basic fee component of the related MSRs.
(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.
(C)Excludes asset-backed securities collateralized by servicer advances, which had an aggregate face amount of $100.0 million and an aggregate carrying value of $100.1 million as of December 31, 2016.

(B)Weighted average life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.
  Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
  2017
2016
2017
2016
Changes in Fair Value Recorded in Other Income $10,941
 $21,606
 $70,469
 $4,328


26
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 


The following is additional information regarding the Servicer Advance Investments and related financing:
UPB of Underlying Residential Mortgage LoansOutstanding Servicer AdvancesServicer Advances to UPB of Underlying Residential Mortgage LoansFace Amount of Secured Notes and Bonds Payable
Loan-to-Value (“LTV”)(A)
Cost of Funds(C)
Gross
Net(B)
GrossNet
September 30, 2021
Servicer Advance Investments(D)
$21,568,182 $408,085 1.9 %$381,286 89.4 %88.7 %1.3 %1.2 %
December 31, 2020
Servicer Advance Investments(D)
$26,061,499 $449,150 1.7 %$423,144 88.4 %88.6 %1.5 %1.3 %
         
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
September 30, 2017               
Servicer Advance Investments(D)
$145,763,758
 $3,651,705
 2.5% $3,504,060
 92.5% 91.4% 3.3% 2.9%
December 31, 2016               
Servicer Advance Investments(D)
$186,362,657
 $5,617,759
 3.0% $5,560,412
 94.5% 93.4% 3.2% 2.8%
(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances.
(B)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)Annualized measure of the cost associated with borrowings. Gross cost of funds primarily includes interest expense and facility fees. Net cost of funds excludes facility fees.
(D)The following types of advances are included in the Servicer Advance Investments:
September 30, 2021December 31, 2020
Principal and interest advances$75,564 $84,976 
Escrow advances (taxes and insurance advances)170,817 186,426 
Foreclosure advances161,704 177,748 
Total$408,085 $449,150 
 
31
(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances and certain deferred servicing fees (“DSF”) on which New Residential receives financing. If New Residential were to include these DSF in the servicer advance balance, gross and net LTV as of September 30, 2017 would be 86.6% and 85.6%, respectively. Also excludes retained Non-Agency bonds with a current face amount of $79.9 million from the outstanding servicer advance debt. If New Residential were to sell these bonds, gross and net LTV as of September 30, 2017 would be 94.6% and 93.5%, respectively.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(B)Ratio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
(C)Annualized measure of the cost associated with borrowings. Gross Cost of Funds primarily includes interest expense and facility fees. Net Cost of Funds excludes facility fees.
(D)The following types of advances are included in the Servicer Advance Investments:


September 30, 2017
December 31, 2016
Principal and interest advances
$939,897

$1,489,929
Escrow advances (taxes and insurance advances)
1,634,892

2,613,050
Foreclosure advances
1,076,916

1,514,780
Total
$3,651,705
 $5,617,759
Interest income recognized by New Residential related to its Servicer Advance Investments was comprised of the following:


Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,


2017
2016
2017
2016
Interest income, gross of amounts attributable to servicer compensation
$83,979

$161,601

$290,933

$581,231
Amounts attributable to base servicer compensation(A)

(38,549)
(15,276)
(145,055)
(68,184)
Amounts attributable to incentive servicer compensation(A)

84,724

(45,197)
300,788

(255,170)
Interest income from Servicer Advance Investments(A)

$130,154
 $101,128
 $446,666
 $257,877

(A)Total interest income of $130.2 million and $446.7 million for the three and nine months ended September 30, 2017 includes retrospective adjustments of $46.5 million and $204.1 million, respectively, mainly due to changes in cash flow assumptions relating to the HLSS portfolio, including a change in the cost of subservicing assumption to 13 bps.


27
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

Interest Income related to Servicer Advance Investments consists of the following:
Three Months Ended
September 30,		Nine Months Ended September 30,
2021202020212020
Interest income, gross of amounts attributable to servicer compensation$(1,426)$10,505 $16,079 $28,160 
Amounts attributable to base servicer compensation897 (703)(849)(2,325)
Amounts attributable to incentive servicer compensation892 1,196 (8,144)(12,755)
Interest income (expense) from servicer advance investments$363 $10,998 $7,086 $13,080 

7.    REAL ESTATE AND OTHER SECURITIES

The following is a summary of Real Estate and Other Securities:
September 30, 2021December 31, 2020
Gross UnrealizedWeighted Average
Outstanding Face AmountGainsLosses
Carrying Value(A)
Number of Securities
Rating(B)
Coupon(C)
Yield
Life (Years)(D)
Principal Subordination(E)
Carrying
Value
RMBS Designated as available for sale (AFS):
Agency(F)(G)
$96,435 $6,596 $— $102,807 1 AAA3.50 %3.50 %4.5N/A$121,761 
Non-Agency(H)(I)
3,084,732 82,716 (123)552,159 339 AA3.25 %3.08 %3.424.3 %752,003 
RMBS Measured at fair value through net income (FVO):
Agency(F)(G)
8,782,782 203 (185,517)8,879,880 40 AAA2.13 %2.13 %6.6N/A12,941,873 
Non-Agency(H)(I)
13,530,488 32,454 (45,813)438,949 257 AA+2.16 %4.38 %3.321.8 %428,921 
Total/
   Weighted
    Average		$25,494,437 $121,969 $(231,453)$9,973,795 637 AAA2.28 %3.44 %4.5$14,244,558 
(A)Fair value is equal to the carrying value for all securities. See Note 12 regarding the fair value measurements.
(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 301 bonds with a carrying value of $370.9 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 hasused an implied AAA rating for the Agency RMBS. Ratings provided were determined thatby third-party rating agencies and represent the Buyermost 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 $24.8 million and $2.8 million, respectively, for which no coupon payment is a VIE. expected.
(D)The following table presents informationweighted average life is based on the assetstiming 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 Ginnie Mae.
(G)The total outstanding face amount was $8.9 billion for fixed rate securities as of September 30, 2021.
(H)The total outstanding face amount was $10.0 billion (including $9.1 billion of residual and liabilities related to this consolidated VIE.fair value option notional amount) for fixed rate securities and $6.6 billion (including $6.5 billion of residual and fair value option notional amount) for floating rate securities as of September 30, 2021.


32
  As of
  September 30, 2017 December 31, 2016
Assets    
Servicer advance investments, at fair value $1,039,103
 $1,731,633
Cash and cash equivalents 40,222
 37,854
All other assets 12,961
 19,799
Total assets(A)
 $1,092,286
 $1,789,286
Liabilities    
Notes and bonds payable $819,190
 $1,464,851
All other liabilities 3,637
 5,187
Total liabilities(A)
 $822,827
 $1,470,038

(A)The creditors of the Buyer do not have recourse to the general credit of New Residential and the assets of the Buyer are not directly available to satisfy New Residential’s obligations.

Others’ interests in the equity of the Buyer is computed as follows:
  September 30, 2017 December 31, 2016
Total Advance Purchaser LLC equity $269,459
 $319,248
Others’ ownership interest 27.2% 54.2%
Others’ interest in equity of consolidated subsidiary $73,316
 $173,057

Others’ interests in the Buyer’s net income is computed as follows:
  Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
  2017 2016 2017 2016
Net Advance Purchaser LLC income $3,584
 $33,985
 $20,460
 $60,207
Others’ ownership interest as a percent of total(A)
 34.2% 55.5% 50.7% 55.5%
Others’ interest in net income of consolidated subsidiaries $1,224
 $18,853
 $10,372
 $33,400

NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(A)As a result, New Residential owned 65.8% and 44.5% of the Buyer, on average during the three months ended September 30, 2017 and 2016, respectively 49.3% and 44.5% of the Buyer, on average during the nine months ended September 30, 2017 and 2016, respectively.

See Note 11 regarding the financing of Servicer Advance Investments.


28
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

7.INVESTMENTS IN REAL ESTATE SECURITIES

Agency residential mortgage backed(I)Includes other asset-backed securities (“RMBS”ABS”) are RMBS issuedconsisting primarily of (i) interest-only securities and servicing strips (fair value option securities) which New Residential elected to carry at fair value and record changes to valuation through earnings, (ii) bonds backed by a government sponsored enterprise, such as the 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.consumer loans, and (iii) corporate debt.

Gross UnrealizedWeighted Average
Asset TypeOutstanding Face AmountGainsLossesCarrying ValueNumber of SecuritiesRatingCouponYieldLife (Years)Principal Subordination
Corporate debt$414 $8 $— $422 1 B-8.3 %8.3 %3.5N/A
Consumer loan bonds4,394 1,117 — 4,439 3 N/AN/AN/A0N/A
Fair value option securities:
Interest-only securities7,555,236 8,612 (39,437)169,369 124 AA+1.2 %1.1 %2.0N/A
Servicing strips4,771,880 6,629 (6,270)65,633 59 N/A1.5 %16.6 %2.8N/A

Activities related to New Residential’s investments in real estate securitiesReal Estate and Other Securities were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in millions)AgencyNon-AgencyAgencyNon-AgencyAgencyNon-AgencyAgencyNon-Agency
Purchases
Face$— $844.3 $6,300.0 $— $5,907.2 $2,502.0 $17,162.6 $5,083.1 
Purchase price— 55.1 6,538.0 — 6,098.8 145.9 17,687.4 575.0 
Sales
Face$4,343.0 $— $1,195.5 $716.6 $7,830.8 $1,686.3 $18,590.6 $8,204.4 
Amortized cost4,499.1 7.7 1,231.8 526.3 8,135.6 192.9 18,911.0 6,083.5 
Sale price4,443.0 — 1,251.5 514.6 8,074.3 164.6 19,120.5 5,139.2 
Gain (loss) on sale(56.1)(7.7)19.7 (11.6)(61.3)(28.2)209.5 (944.3)
 Nine Months Ended 
 September 30, 2017
 (in millions)
 Agency Non-Agency
Purchases   
Face$5,848.4
 $6,173.4
Purchase Price$6,037.9
 $2,418.4
    
Sales   
Face$6,134.9
 $219.4
Amortized Cost$6,293.3
 $147.9
Sale Price$6,304.4
 $166.4
Gain (Loss) on Sale$11.1
 $18.4


As of September 30, 2017, New Residential had sold2021 and purchased $1.7 billion and $1.0 billion face amount of Agency RMBS for $1.8 billion and $1.1 billion, respectively, and purchased $30.8 million face amount of Non-Agency RMBS for $12.5 million, which had not yet been settled. TheseDecember 31, 2020, there were 0 unsettled trades. Unsettled sales and purchases wereare recorded on the balance sheetConsolidated Balance Sheets on trade date as Trades Receivable for Investments Sold and Trades Payable.Payable for Investments Purchased.


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


The following is a summary of New Residential’s real estate securities, all ofUnrealized Gains (Losses)— Other than credit impairment losses which are classifiedrecognized in net income, changes in the fair value of RMBS designated as available-for-sale andavailable for sale (“AFS”) are therefore, reported atin other comprehensive income as an unrealized gain or loss until the security is sold or matures. Effective January 1, 2021, New Residential elected the fair value option for RMBS purchased on or after that date with changes in fair value recordedreported in net income as an unrealized gain or loss until the security is sold or matures.

Realized Gains (Losses) — Upon the sale of an RMBS designated as AFS, any unrealized gain or loss is reclassified out of accumulated other comprehensive income exceptinto net income as a realized gain or loss within Gain (Loss) on Settlement of Investments, Net. Upon the sale of a security for securities that are other-than-temporarily impaired and except for securities which New Residential has elected to carry atthe fair value option, any unrealized gain or loss recorded in Change in Fair value of Investments is reversed and record changes to valuation through the income statement.realized gain or loss is recorded within Gain (Loss) on Settlement of Investments, Net.


33
  September 30, 2017 December 31, 2016
      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)
 Carrying Value
Agency
  RMBS(F) (G)
 $1,123,553
 $1,195,281
 $1,352
 $(5,977) $1,190,656
 68
 AAA 4.08% 2.96% 7.6 N/A
 $1,530,298
Non-Agency
    RMBS(H) (I)
 11,906,608
 5,136,883
 412,213
 (24,906) 5,524,190
 752
 CCC- 1.97% 5.77% 7.7 8.9% 3,543,560
Total/
   Weighted
    Average
 $13,030,161
 $6,332,164
 $413,565
 $(30,883) $6,714,846
 820
 B 2.33% 5.24% 7.7   $5,073,858
(A)Fair value, which is equal to carrying value for all securities. See Note 12 regarding the estimation of fair value.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(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 218 bonds with a carrying value of $335.8 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

29
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

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 $161.1 million and $0.0 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 and servicer advance bonds.
(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 $1.0 billion for fixed rate securities and $113.6 million for floating rate securities as of September 30, 2017.
(H)The total outstanding face amount was $1.2 billion (including $0.7 billion of residual and fair value option notional amount) for fixed rate securities and $10.7 billion (including $4.2 billion of residual and fair value option notional amount) for floating rate securities as of September 30, 2017.
(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 servicer advances and (iii) bonds backed by consumer loans.
      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
Consumer loan bonds $24,472
 $29,048
 $3,202
 $—
 $32,250
 2
 N/A N/A
 17.31% 1.4 N/A
Fair Value Option Securities:                      
Interest-only securities 4,219,861
 203,359
 8,545
 (10,257) 201,647
 45
 AA+ 1.57% 5.81% 2.8 N/A
Servicing strips 442,479
 5,108
 1,270
 (193) 6,185
 16
 N/A 0.27% 22.40% 6.7 N/A

Unrealized losses that are considered other-than-temporary are recognized currently in earnings. During the nine months ended September 30, 2017, New Residential recorded OTTI charges of $8.7 million with respect to real estate securities. Any remaining unrealized losses on New Residential’s securities were primarily the result of changes in market factors, rather than issue-specific credit impairment. New Residential performed analyses in relation to such securities, using its best estimate of their cash flows, which support its belief that the carrying values of such securities were fully recoverable over their expected holding period. New Residential has no intent to sell, and is not more likely than not to be required to sell, these securities.

The following table summarizes New Residential’scertain information for RMBS designated as AFS in an unrealized loss position as of September 30, 2021:
Securities in an Unrealized Loss PositionOutstanding Face AmountAmortized Cost BasisGross Unrealized LossesCarrying ValueNumber of SecuritiesWeighted Average
Before Credit Impairment
Credit Impairment(A)
After Credit ImpairmentRatingCouponYieldLife
(Years)
Less than 12 Months$6,179 $4,438 $(175)$4,263 $(18)$4,245 4 AAA1.5 %1.2 %2.2
12 or More Months21,274 12,152 (3,477)8,675 (105)8,570 14 AA+— %0.5 %0.3
Total/Weighted Average$27,453 $16,590 $(3,652)$12,938 $(123)$12,815 18 AAA0.4 %0.7 %0.8
(A)Represents credit impairment on securities in an unrealized loss position as of September 30, 2017.2021.
    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 $3,545,243
 $1,449,339
 $(1,223) $1,448,116
 $(17,928) $1,430,188
 153
 CCC+ 2.32% 4.50% 7.2
12 or More Months 783,653
 226,610
 (286) 226,324
 (12,955) 213,369
 59
 BBB 2.51% 3.28% 3.5
Total/Weighted Average $4,328,896
 $1,675,949
 $(1,509) $1,674,440
 $(30,883) $1,643,557
 212
 B 2.34% 4.33% 6.7
(A)This amount represents OTTI recorded on securities that are in an unrealized loss position as of September 30, 2017.
(B)The weighted average rating of securities in an unrealized loss position for less than 12 months excludes the rating of 50 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 14 bonds which either have never been rated or for which rating information is no longer provided.


30
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 


New Residential performed an assessment of all of its debt securitiesRMBS designated as AFS that are in an unrealized loss position (an unrealized loss position exists when a security’s amortized cost basis, excluding the effect of OTTI,credit impairment, exceeds its fair value) and determined the following:
September 30, 2021December 31, 2020
Gross Unrealized LossesGross Unrealized Losses
RMBS Designated as AFSFair ValueAmortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Fair ValueAmortized Cost Basis After Credit Impairment
Credit(A)
Non-Credit(B)
Securities New Residential intends to sell$— $— $— $— $— $— $— $— 
Securities New Residential is more likely than not to be required to sell(C)
— — — — — — — N/A
Securities New Residential has no intent to sell and is not more likely than not to be required to sell:
Credit impaired securities8,501 8,501 (3,652)— 21,326 21,326 (8,672)— 
Non-credit impaired securities4,314 4,437 — (123)270,821 331,638 — (60,817)
Total debt securities in an unrealized loss position$12,815 $12,938 $(3,652)$(123)$292,147 $352,964 $(8,672)$(60,817)
(A)This amount is required to be recorded through earnings. In measuring the portion of credit losses, New Residential estimates the expected cash flow for each of the securities. This evaluation included a review of the credit status and the performance of the collateral supporting those securities, including the credit of the issuer, key terms of the securities and the effect of local, industry and broader economic trends. Significant inputs in estimating the cash flows included New Residential’s expectations of prepayment rates, default rates and loss severities. Credit losses were measured as the decline in the present value of the expected future cash flows discounted at the security’s effective interest rate.
(B)This amount represents unrealized losses on securities that are due to non-credit factors.
(C)New Residential may, at times, be more likely than not to be required to sell certain securities for liquidity purposes. While the amount of the securities to be sold may be an estimate, and the securities to be sold have not yet been identified, New Residential must make its best estimate, which is subject to significant judgment regarding future events, and may differ materially from actual future sales.

34
 September 30, 2017
     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 securities373,046
 378,585
 (1,509) (5,539)
Non-credit impaired securities1,270,511
 1,295,855
 —
 (25,344)
Total debt securities in an unrealized loss position$1,643,557
 $1,674,440
 $(1,509) $(30,883)
(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.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(B)This amount represents unrealized losses on securities that are due to non-credit factors and recorded through other comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(C)A portion of securities New Residential intends to sell have a fair value equal to their amortized cost basis after impairment,(dollars in tables in thousands, except share and therefore do not have unrealized losses reflected in other comprehensive income as of September 30, 2017.per share data) 
(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 the allowance for credit losses on debt securities:RMBS designated as AFS (excluding credit impairment relating to securities New Residential intends to sell or is more likely than not required to sell):
 Nine Months Ended September 30, 2017
Beginning balance of credit losses on debt securities for which a portion of an OTTI was
    recognized in other comprehensive income
$15,495
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
3,433
Additions for credit losses on securities for which an OTTI was not previously recognized5,303
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 during the period(1,679)
Ending balance of credit losses on debt securities for which a portion of an OTTI was recognized
    in other comprehensive income
$22,552
RMBS Designated as AFSPurchased Credit DeterioratedNon-Purchased Credit DeterioratedTotal
Allowance for credit losses on available-for-sale debt securities at December 31, 2020$8,672 $— $8,672 
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded— — — 
Additions to the allowance for credit losses arising from purchases of available-for-sale debt securities accounted for as purchased financial assets with credit deterioration— — — 
Reductions for securities sold during the period(2,182)— (2,182)
Reductions in the allowance for credit losses because the entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis— — — 
Additional increases (decreases) to the allowance for credit losses on securities that had credit losses or an allowance recorded in a previous period(2,838)— (2,838)
Write-offs charged against the allowance— — — 
Recoveries of amounts previously written off— — — 
Allowance for credit losses on available-for-sale debt securities at September 30, 2021$3,652 $— $3,652 
 

31
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

The table below summarizes the geographic distribution of the collateral securing New Residential’s Non-Agency RMBS:
  September 30, 2017 December 31, 2016
Geographic Location(A)
 Outstanding Face Amount
Percentage of Total Outstanding Outstanding Face Amount
Percentage of Total Outstanding
Western U.S. $4,571,310

38.5% $2,757,424
 38.3%
Southeastern U.S. 2,826,743

23.8% 1,635,596
 22.7%
Northeastern U.S. 2,354,645

19.8% 1,426,519
 19.8%
Midwestern U.S. 1,258,005

10.6% 778,372
 10.8%
Southwestern U.S. 851,851

7.2% 557,033
 7.7%
Other(B)
 19,582

0.1% 47,274
 0.7%
  $11,882,136

100.0% $7,202,218
 100.0%
(A)Excludes $24.5 million face amount of bonds backed by consumer loans as of September 30, 2017 and $100.0 million face amount of bonds backed by servicer advances as of December 31, 2016.
(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 nine months ended September 30, 2017, excluding residual and fair value option securities, the face amount of these real estate securities was $2,408.4 million, with total expected cash flows of $2,105.1 million and a fair value of $1,370.8 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 AmountCarrying Value
September 30, 2021$521,234 $181,176 
December 31, 2020727,216 280,876 
 Outstanding Face Amount Carrying Value
September 30, 2017$4,862,764
 $3,140,510
December 31, 20162,951,498
 1,871,466


The following is a summary of the changes in accretable yield for these securities:
Balance at December 31, 2020$189,562 
Additions7,948 
Accretion(3,951)
Reclassifications from (to) non-accretable difference(8,177)
Disposals(149,058)
Balance at September 30, 2021$36,324 
 Nine Months Ended September 30, 2017
Balance at December 31, 2016$1,200,125
Additions734,367
Accretion(149,334)
Reclassifications from (to) non-accretable difference271,919
Disposals(67,197)
Balance at September 30, 2017$1,989,880


See Note 11 regarding the financing of real estate securities.Real Estate and Other Securities.



32
35
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

8.    RESIDENTIAL MORTGAGE LOANS
8.INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS


New Residential’s residential mortgage loan portfolio consists of loans acquired through pool acquisitions and the execution of call rights. New Residential, through its wholly-owned subsidiaries, Newrez and Caliber, originates residential mortgage loans for sale and securitization to third parties and generally retains the servicing rights on the underlying loans.

Loans are accounted for based on New Residential’s strategy for the loan and on whether the loan was credit-impaired at the date of acquisition. As of September 30, 2021, New Residential accounts for loans based on the following categories:


•Loans Held-for-Investment (which may include PCD Loans)held-for-investment, at fair value
•Loans Held-for-Saleheld-for-sale, at lower of cost or fair value
Real Estate Owned (“REO”)•Loans held-for-sale, at fair value


The following table presents certain information regarding New Residential’s residential mortgage loans outstanding by loan type, excluding REO:type:
September 30, 2021December 31, 2020
Loan TypeOutstanding Face AmountCarrying
Value		Loan
Count		Weighted Average Yield
Weighted Average Life (Years)(A)
Carrying Value
Total residential mortgage loans, held-for-investment, at fair value(B)
$657,427 $595,012 11,472 6.3 %5.3$674,179 
Acquired reverse mortgage loans(C)
$12,690 $6,120 28 7.7 %3.7$5,884 
Acquired performing loans(D)
150,127 136,921 2,977 6.7 %4.5129,345 
Acquired non-performing loans(E)
2,123 1,702 24 7.5 %4.8374,658 
Total residential mortgage loans, held-for-sale, at lower of cost or market$164,940 $144,743 3,029 6.8 %4.4$509,887 
Acquired performing loans(D)(F)
$2,100,079 $2,112,181 12,575 3.4 %11.0$1,423,159 
Acquired non-performing loans(F)
160,098 146,370 923 4.8 %5.6335,544 
Originated loans11,403,519 11,714,006 13,538 3.0 %27.72,947,113 
Total residential mortgage loans, held-for-sale, at fair value$13,663,696 $13,972,557 27,036 3.1 %24.9$4,705,816 
Total residential mortgage loans, held-for-sale, at fair value/lower of cost or market$13,828,636 $14,117,300 $5,215,703 
(A)For loans classified as Level 3 in the fair value hierarchy, the weighted average life is based on the expected timing of the receipt of cash flows. For Level 2 loans, the weighted average life is based on the contractual term of the loan.
(B)Residential mortgage loans, held-for-investment, at fair value is grouped and presented as part of Residential loans and variable interest entity consumer loans held-for-investment, at fair value on the Consolidated Balance Sheets.
(C)Represents a 70% participation interest that New Residential holds in a portfolio of reverse mortgage loans. Mr. Cooper holds the other 30% interest and services the loans. The average loan balance outstanding based on total UPB was $0.6 million. Approximately 54% of these loans have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.
(D)Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.
(E)As of September 30, 2021, New Residential has placed non-performing loans, held-for-sale on nonaccrual status, except as described in (F) below.
(F)Includes $981.3 million and $101.6 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

36


September 30, 2017 December 31, 2016


Outstanding Face Amount
Carrying
Value
Loan
Count
Weighted Average Yield
Weighted Average Life (Years)(A)

Floating Rate Loans as a % of Face Amount
Loan to Value Ratio (“LTV”)(B)

Weighted Avg. Delinquency(C)

Weighted Average FICO(D)
 Carrying Value
Loan Type

















 
Reverse Mortgage Loans(E) (F)

$—

$—

—

—%
—
—%
—%
—%
 N/A
 $—
Performing Loans(G)

556,361

507,300

8,079

8.0%
5.6
18.7%
78.8%
7.6%
651
 —
Purchased Credit Deteriorated Loans(H)
 264,183
 194,927
 2,258
 7.1% 3.0 14.4% 81.5% 79.3% 597
 190,761
Total Residential Mortgage Loans, held-for-investment
$820,544
 $702,227
 10,337

7.7%
4.8
17.3%
79.6%
30.7%
634
 $190,761
                     
Reverse Mortgage Loans(E) (F)
 $19,207
 $9,342
 51
 7.2% 4.3 13.6% 135.1% 81.6%  N/A
 $11,468
Performing Loans(G) (I)
 779,618
 791,134
 11,139
 4.0% 4.9 16.4% 65.8% 3.4% 663
 175,194
Non-Performing Loans(H) (I)
 820,912
 626,275
 5,228
 5.5% 4.3 21.4% 97.0% 60.0% 583
 510,003
Total Residential Mortgage Loans, held-for-sale $1,619,737
 $1,426,751
 16,418
 4.8% 4.6 18.9% 82.4% 33.0% 622
 $696,665

(A)The weighted average life is based on the expected timing of the receipt of cash flows.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(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 that New Residential holds in a portfolio of reverse mortgage loans. The average loan balance outstanding based on total UPB was $0.5 million. Approximately 59% of these loans have reached a termination event. As a result of the termination event, each such loan has matured and the borrower can no longer make draws on these loans.
(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 September 30, 2017, New Residential has placed Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.
(I)Includes $34.9 million and $70.6 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

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


33
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

The table below summarizes the geographic distribution of the underlying residential mortgage loans:
Percentage of Total Outstanding Unpaid Principal Amount
State ConcentrationSeptember 30, 2021December 31, 2020
California15.3 %11.9 %
Washington10.7 %1.8 %
Florida9.3 %7.1 %
Texas7.4 %10.1 %
New York4.1 %7.1 %
New Jersey3.6 %4.2 %
Virginia3.6 %2.5 %
Georgia3.0 %5.8 %
Illinois3.0 %3.0 %
Maryland2.9 %2.3 %
Other U.S.37.1 %44.2 %
100.0 %100.0 %
  Percentage of Total Outstanding Unpaid Principal Amount
State Concentration September 30, 2017 December 31, 2016
New York 13.5% 16.7%
Florida 7.7% 11.4%
California 11.9% 10.3%
New Jersey 5.8% 9.6%
Texas 6.1% 3.9%
Illinois 3.9% 4.0%
Pennsylvania 3.2% 2.9%
Massachusetts 3.1% 3.5%
Maryland 2.9% 4.7%
Washington 1.9% 2.8%
Other U.S. 40.0% 30.2%
  100.0% 100.0%


See Note 11 regarding the financing of residential mortgage loansloans.

The following table summarizes the difference between the aggregate unpaid principal balance and related assets.the aggregate fair value of loans:

September 30, 2021December 31, 2020
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal BalanceUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
90 to 119$28,898 $26,442 $(2,456)$71,567 $59,679 $(11,888)
120+410,134 397,483 (12,651)950,564 790,788 (159,776)
$439,032 $423,925 $(15,107)$1,022,131 $850,467 $(171,664)

Call Rights


New Residential has executed calls 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 theseFor the nine months ended September 30, 2021, New Residential executed calls on a total of 65 trusts and recognized $3.3 million of interest income on securities held in the collapsed trusts and $28.7 million of gain on securitizations accounted for as sales. For the nine months ended September 30, 2020, New Residential executed calls on a total of 15 trusts and recognized $12.0 million of interest income on securities held in the collapsed trusts and $48.3 million of gain on securitizations accounted for as sales. Refer to Note 16 for transactions (dollars in millions).with affiliates.

37
    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 Loan UPB Loan Price REO & Other Price
January 2017 2
 $49.3
 $43.6
 $98.8
 $96.7
 $7.5
 
N/A(C)
 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)

February 2017 31
 60.9
 40.1
 882.0
 895.5
 10.1
 March 2017 $773.8
 $2.1
 $81.9
 $105.9
 $90.1
 $10.8
March 2017 12
 —
 —
 222.4
 228.8
 0.4
 
N/A(C)
 
N/A(C)

 
N/A(C)

 
N/A(C)

 27.7
 25.7
 0.4
April 2017 —
 —
 —
 —
 —
 —
 April 2017 668.0
 10.3
 76.1
 —
 —
 —
April 2017 14
 9.8
 6.3
 376.9
 378.8
 5.9
 
N/A(C)
 
N/A(C)

 
N/A(C)

 
N/A(C)

 62.5
 55.7
 5.9
May 2017 15
 26.4
 16.9
 420.5
 424.4
 3.7
 
June 2017#1
 716.0
 5.7
 68.4
 47.6
 40.5
 3.7
June 2017 20
 1.0
 0.5
 534.8
 549.8
 0.8
 
June 2017#2
 497.6
 10.3
 58.4
 34.9
 40.4
 0.8
June 2017 3
 28.2
 17.3
 101.7
 106.6
 1.9
 
N/A(C)
 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)

 
N/A(C)

July 2017 22
 19.9
 15.7
 358.5
 360.5
 1.7
  July 2017 339.3
 2.7
 25.7
 18.3
 18.6
 1.7
September 2017 21
 120.6
 95.1
 583.7
 593.2
 5.3
 
 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.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(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 April 2017 primarily included loans from the March 2017 calls and other acquired loans. The June 2017#1 securitization primarily included loans from the April 2017 and May 2017 calls, but also included $31.1 million of previously acquired loans. No loans from the January 2017 calls, no loans from the last three June 2017 calls and no loans from the September 2017 calls had been securitized by September 30, 2017. In May 2017, certain reperforming residential mortgage loans were financed with a securitization which was not treated as a sale for accounting purposes (see Variable Interest Entities below and Note 11).

34
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 


Performing Loans

The following table provides past due information regarding New Residential’s Performing Loans, which is an important indicator of credit quality andsummarizes the establishment of the allowanceactivity for loan losses:
September 30, 2017
Days Past Due
Delinquency Status(A)
Current84.6%
30-597.6%
60-893.6%
90-119(B)
2.1%
120+(C)
2.1%
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.

Activities related to the carrying value of residential mortgage loans held-for-investment were as follows:
 Performing Loans
Balance at December 31, 2016$—
Purchases/additional fundings527,098
Proceeds from repayments(23,704)
Accretion of loan discount (premium) and other amortization(A)
4,387
Charge-offs(481)
Transfer of loans to other assets—
Transfer of loans to real estate owned—
Balance at September 30, 2017$507,300

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

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, 2016$—
Provision for loan losses(A)
481
Charge-offs(B)
(481)
Balance at September 30, 2017$—

(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.


35
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

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, 2016$190,761
Purchases/additional fundings58,884
Sales—
Proceeds from repayments(25,166)
Accretion of loan discount and other amortization14,898
Transfer of loans to real estate owned(21,370)
Transfer of loans to held-for-sale(23,080)
Balance at September 30, 2017$194,927

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
September 30, 2017$264,183
 $194,927
December 31, 2016203,673
 190,761

The following is a summary of the changes in accretable yield for these loans:
Loans Held-for-Investment, at Fair ValueLoans Held-for-Sale, at Lower of Cost or Fair ValueLoans Held-for-Sale, at Fair ValueTotal
Balance at December 31, 2020$674,179 $509,887 $4,705,816 $5,889,882 
Caliber acquisition (Note 1)— — 7,685,681 7,685,681 
Originations— — 84,990,504 84,990,504 
Sales— (370,743)(88,980,603)(89,351,346)
Purchases/additional fundings— — 5,797,205 5,797,205 
Proceeds from repayments(91,074)(26,988)(360,757)(478,819)
Transfer of loans to other assets(A)
— 294 7,990 8,284 
Transfer of loans to real estate owned(13,121)(7,163)(3,235)(23,519)
Valuation (provision) reversal on loans— 39,456 — 39,456 
Fair value adjustments due to:
Changes in instrument-specific credit risk(1,841)— (10,247)(12,088)
Other factors26,869 — 140,203 167,072 
Balance at September 30, 2021$595,012 $144,743 $13,972,557 $14,712,312 
Balance at December 31, 2016$23,688
Additions21,454
Accretion(14,898)
Reclassifications from non-accretable difference(A)
24,075
Disposals(B)
(1,507)
Transfer of loans to held-for-sale(C)
—
Balance at September 30, 2017$52,812

(A)(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.


36
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

Loans Held-for-Sale

Activities related to the carrying value of loans held-for-sale were as follows:
  For the  
 Nine Months Ended 
 September 30, 2017
  Loans Held-for-Sale
Balance at December 31, 2016 $696,665
Purchases(A)
 4,146,740
Transfer of loans from held-for-investment(B)
 23,080
Sales (3,267,595)
Transfer of loans to other assets(C)
 (13,976)
Transfer of loans to real estate owned (53,254)
Proceeds from repayments (85,746)
Valuation (provision) reversal on loans(D)
 (19,163)
Balance at September 30, 2017 $1,426,751

(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.
(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 $21.6 million of provision related to the call transactions executed during the nine months ended September 30, 2017.

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, 2016 $59,591
Purchases 25,667
Transfer of loans to real estate owned 91,414
Sales (70,652)
Valuation (provision) reversal on REO 1,261
Balance at September 30, 2017 $107,281

As of September 30, 2017, New Residential had residential mortgage loans that were in the process of foreclosure with an unpaid principal balance of $406.8 million.

In addition, New Residential has recognized $43.3 million in unpaid claims receivable from FHA on Ginnie Mae early buy-out (“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.claim with the governmental agency that has guaranteed the loans that are grouped and presented as part of claims receivable in Other Assets (Note 2).



Net interest income

The following table summarizes the net interest income for residential mortgage loans:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Interest income:
Loans held-for-investment, at fair value$11,090 $12,647 $34,061 $40,985 
Loans held-for-sale, at lower of cost or fair value5,449 7,406 18,241 38,673 
Loans held-for-sale, at fair value75,802 31,267 163,769 104,565 
Total interest income92,341 51,320 216,071 184,223 
Interest expense:
Loans held-for-investment, at fair value4,238 5,326 13,129 15,934 
Loans held-for-sale, at lower of cost or fair value4,030 4,068 16,303 17,501 
Loans held-for-sale, at fair value49,187 20,909 103,785 64,206 
Total interest expense57,455 30,303 133,217 97,641 
Net interest income$34,886 $21,017 $82,854 $86,582 

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

Newrez and Caliber, both wholly-owned subsidiaries of New Residential, originate 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 and Caliber respectively generally retain the right to service the underlying residential mortgage
37
38
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

loans. In connection with the transfer of loans to the GSEs or mortgage investors, New Residential reports Gain on Originated Mortgage Loans, Held-for-Sale, Net in the Consolidated Statements of Income.
Variable Interest Entities

Gain on Originated Mortgage Loans, Held-for-Sale, Net is summarized below:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Gain on loans originated and sold, net(A)
$249,848 $244,225 $347,574 $520,096 
Gain (loss) on settlement of mortgage loan origination derivative instruments(B)
(105,594)(68,789)48,522 (290,671)
MSRs retained on transfer of loans(C)
415,054 156,353 878,190 424,451 
Other(D)
27,614 12,460 79,716 33,890 
Realized gain on sale of originated mortgage loans, net$586,922 $344,249 $1,354,002 $687,766 
Change in fair value of loans(70,932)67,998 (67,545)96,375 
Change in fair value of interest rate lock commitments (Note 10)(101,411)82,019 (281,094)206,073 
Change in fair value of derivative instruments (Note 10)152,182 (6,013)251,731 (23,401)
Gain on originated mortgage loans, held-for-sale, net$566,761 $488,253 $1,257,094 $966,813 
(A)Includes loan origination fees of $678.4 million and $566.3 million for the three months ended September 30, 2021 and 2020, respectively, and $1,775.7 million and $953.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(B)Represents settlement of forward securities delivery commitments utilized as an economic hedge for mortgage loans not included within forward loan sale commitments.
(C)Represents the initial fair value of the capitalized mortgage servicing rights upon loan sales with servicing retained.
(D)Includes fees for services associated with the loan origination process.

9.    CONSUMER LOANS

New Residential, formed entities (the “RPL Borrowers”) that issued securitized debt collateralized by reperforming residential mortgage loans. The RPL Borrowers are VIEs of which subsidiaries of New Residential are the primary beneficiaries, as a result of controlling the related optional redemption feature and owning certain notes issued by the RPL Borrowers. The following table presents information on the combined assets and liabilities related to these consolidated VIEs.
  As of
  September 30, 2017
Assets  
Residential mortgage loans $193,010
Other assets —
Total assets(A)
 $193,010
Liabilities  
Notes and bonds payable(B)
 $189,843
Accounts payable and accrued expenses 16
Total liabilities(A)
 $189,859

(A)The creditors of the RPL Borrowers do not have recourse to the general credit of New Residential, and the assets of the RPL Borrowers are not directly available to satisfy New Residential’s obligations.
(B)Includes $78.2 million of bonds retained by New Residential issued by these VIEs.

As described in “Call Rights” above, New Residential has issued securitizations which were treated as sales under GAAP. New Residential has no obligation to repurchase any loans from these securitizations and its exposure to loss is limited to the carrying amount of its retained interests in the securitization entities. These securitizations are conducted through variable interest entities, of which New Residential is not the primary beneficiary. The following table summarizes certain characteristics of the underlying residential mortgage loans, and related financing, in these securitizations as of September 30, 2017:
Residential mortgage loan UPB $4,701,889
Weighted average delinquency(A)
 1.64%
Net credit losses for the nine months ended September 30, 2017 $4,943
Face amount of debt held by third parties(B)
 $4,453,838
   
Carrying value of bonds retained by New Residential $400,793
Cash flows received by New Residential on these bonds for the nine months ended September 30, 2017 $63,064

(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by New Residential.

9.INVESTMENTS IN CONSUMER LOANS
In April 2013, New Residential completed, through newly formed limited liability companies (together, the “Consumer Loan Companies”), has a co-investment in a portfolio of consumer loans. The portfolio includedincludes personal unsecured loans and personal homeowner loans originated through subsidiaries of HSBC Finance Corporation. New Residential acquired 30% membership interests in each of the Consumer Loan Companies. Of the remaining 70% of the membership interests, OneMain acquired 47% and funds managed by Blackstone Tactical Opportunities Advisors L.L.C. acquired 23%. OneMain acted as the managing member of the Consumer Loan Companies.loans. OneMain is the servicer of the loans and provides all servicing and advancing functions for the portfolio.

In 2014, the Consumer Loan Companies refinanced the portfolio, resulting in proceeds in excess As of the refinanced debt which were distributed to the respective co-investors. This reducedSeptember 30, 2021, New Residential’s basis in the consumer loans investment to $0.0

38
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

million and resulted in a gain. Subsequent to this refinancing, New Residential discontinued recording its share of the underlying earnings of the Consumer Loan Companies.

Prior to March 31, 2016, New Residential accounted for its investment in the Consumer Loan Companies pursuant to the equity method of accounting because it could exercise significant influence over the Consumer Loan Companies, but the requirements for consolidation were not met. New Residential’s share of earnings and losses in these equity method investees was included in “Earnings from investments in consumer loans, equity method investees” on the Condensed Consolidated Statements of Income. Equity method investments were included in “Investments in consumer loans, equity method investees” on the Condensed Consolidated Balance Sheets.

On March 31, 2016, certain of New Residential’s indirect wholly owned subsidiaries (collectively, the “NRZ SpringCastle Buyers”) entered into a Purchase Agreement (the “SpringCastle Purchase Agreement”) primarily with (i) certain direct or indirect wholly owned subsidiaries of OneMain (the “SpringCastle Sellers”), (ii) BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership - NQ - ESC L.P. (together, the “Blackstone SpringCastle Buyers,” and the Blackstone SpringCastle Buyers together with the NRZ SpringCastle Buyers, collectively, the “SpringCastle Buyers”). Pursuant to the SpringCastle Purchase Agreement, the SpringCastle Sellers sold their collective 47% limited liability company interests in the Consumer Loan Companies to the SpringCastle Buyers (the “SpringCastle Transaction”).

Pursuant to the SpringCastle Purchase Agreement, the NRZ SpringCastle Buyers collectively acquired an additional 23.5% limited liability company interest in the Consumer Loan Companies (representing 50% of the limited liability company interests being sold by the SpringCastle Sellers in the SpringCastle Transaction) and the Blackstone SpringCastle Buyers acquired the other 50% of the limited liability company interests being sold in the SpringCastle Transaction.

Following the SpringCastle Transaction, New Residential, through the NRZ SpringCastle Buyers, owns 53.5% of the limited liability company interests in, the Consumer Loan Companies and the Blackstone SpringCastle Buyers, collectively with their affiliates, own the remaining 46.5% interests in the Consumer Loan Companies. As a result of the SpringCastle Transaction, New Residential obtained a controlling financial interest in, and consolidates, the Consumer Loan Companies.


In 2016, New Residential agreed to purchasealso purchased certain newly originated consumer loans from a third party (“Consumer Loan Seller”). In the aggregate, as of December 31, 2016, New Residential had purchased $177.4 million UPB of loans for an aggregate purchase price of $176.2 million from Consumer Loan Seller. These loans are not held in the Consumer Loan Companies and have been designated as performing consumer loans, held-for-investment.

Upon acquisition, consumer loansheld-for-investment and are accounted for based on New Residential’s strategy for the loan,grouped and on whether the loan was credit impairedpresented as part of Residential Loans and Variable Interest Entity Consumer Loans Held-for-Investment, at the date of acquisition. New Residential determined that it has the intent and ability to hold the consumer loans for the foreseeable future and accounts for consumer loans basedFair Value on the following categories:Consolidated Balance Sheets.


Loans Held-for-Investment:
39
◦Performing Loans
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
◦PCD Loans


39
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

The following table summarizes the investment in consumer loans, held-for-investment, held byat fair value:
Unpaid Principal BalanceInterest in Consumer LoansCarrying ValueWeighted Average Coupon
Weighted Average Expected Life (Years)(A)
Weighted Average Delinquency(B)
September 30, 2021
Performing loans$386,479 53.5 %$444,377 18.5 %3.33.2 %
Purchased credit deteriorated loans(C)
99,538 53.5 %103,221 14.0 %3.26.5 %
Other - performing loans333 100.0 %197 15.5 %0.315.7 %
Total consumer loans$486,350 $547,795 17.6 %3.23.8 %
December 31, 2020
Performing loans$490,222 53.5 %$553,419 18.3 %3.63.7 %
Purchased credit deteriorated loans(C)
127,899 53.5 %129,513 14.1 %3.57.4 %
Other - performing loans2,862 100.0 %2,643 15.3 %0.44.3 %
Total consumer loans$620,983 $685,575 17.4 %3.64.4 %
(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)Includes loans with evidence of credit deterioration since origination where it is probable that New Residential:Residential will not collect all contractually required principal and interest payments.
 Unpaid Principal Balance
Interest in Consumer Loans
Carrying Value
Weighted Average Coupon
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
September 30, 2017           
Consumer Loan Companies           
Performing Loans$1,064,345
 53.5% $1,111,493
 18.7% 3.8 5.7%
Purchased Credit Deteriorated Loans(C)
302,093
 53.5% 254,005
 16.3% 3.4 12.4%
Other - Performing Loans106,535
 100.0% 102,435
 14.2% 1.1 3.4%
Total Consumer Loans, held-for-investment$1,472,973
   $1,467,933
 17.9% 3.5 6.9%
December 31, 2016           
Consumer Loan Companies           
Performing Loans$1,275,121
 53.5% $1,321,825
 18.7% 4.2 6.3%
Purchased Credit Deteriorated Loans(C)
371,261
 53.5% 316,532
 16.6% 3.6 14.0%
Other - Performing Loans163,570
 100.0% 161,129
 14.2% 1.5 0.3%
Total Consumer Loans, held-for-investment$1,809,952
   $1,799,486
 17.9% 3.8 7.3%

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments, which are accounted for as PCD loans.


See Note 11 regarding the financing of consumer loans.

Performing Loans


The following table providessummarizes the past due information regarding New Residential’s performingstatus and difference between the aggregate unpaid principal balance and the aggregate fair value of consumer loans:
September 30, 2021December 31, 2020
Days Past DueUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal BalanceUnpaid Principal BalanceFair ValueFair Value Over (Under) Unpaid Principal Balance
Under 90 days$479,784 $540,463 $60,679 $611,978 $675,691 $63,713 
90+6,566 7,332 766 9,005 9,884 879 
$486,350 $547,795 $61,445 $620,983 $685,575 $64,592 

Activities related to consumer loans held-for-investment, which is an important indicator of credit quality and the establishment of the allowance for loan losses:
were as follows:
September 30, 2017Balance at December 31, 2020$685,575 
Days Past Due
Delinquency Status(A)
Current94.5%
30-592.2%
60-891.3%
90-119(B)
0.8%
120+(B) (C)
1.2%
100.0%

(A)Represents the percentage of the total unpaid principal balance that corresponds to loans that are in each delinquency status.
(B)
Additional fundings(A)
Includes loans more than 90 days past due and still accruing interest.
21,680 
(C)Proceeds from repaymentsInterest is accrued up to the date of charge-off at 180 days past due.


40
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

Activities related to the carrying value of performing consumer loans, held-for-investment were as follows:
  Performing Loans
Balance at December 31, 2016 $1,482,954
Purchases —
Additional fundings(A)
 41,930
Proceeds from repayments (256,210)
Accretion of loan discount and premium amortization, net 3,987
Gross charge-offs (56,569)
Additions to the allowance for loan losses, net (2,164)
Balance at September 30, 2017 $1,213,928

(160,615)
(A)Accretion of loan discount and premium amortization, netRepresents 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, 2016 $2,441
 $997
 $3,438
Provision (reversal) for loan losses 50,212
 504
 50,716
Net charge-offs(C)
 (48,552) —
 (48,552)
Balance at September 30, 2017 $4,101
 $1,501
 $5,602

14,493 
(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.
Fair value adjustment due to:
(B)Changes in instrument-specific credit riskRepresents 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 September 30, 2017, there are $9.5 million in UPB and $9.6 million in carrying value of consumer loans classified as TDRs.
15,963 
(C)Other factorsConsumer 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 $8.0 million in recoveries of previously charged-off UPB.

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, 2016 $316,532
(Allowance) reversal for loan losses(A)
 3,013
Proceeds from repayments (96,684)
Accretion of loan discount and other amortization 31,144
Balance at September 30, 2017 $254,005

(29,301)
(A)An allowance represents the present value of cash flows expectedBalance 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.


41
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20172021
(dollars in tables in thousands, except share data) $547,795 

The following is the unpaid principal balance and carrying value for(A)Represents draws on consumer loans for which, as of the acquisition date, it was probable that with revolving privileges.

10.    DERIVATIVES
New Residential would be unable to collect all contractually required payments:
 Unpaid Principal Balance Carrying Value
September 30, 2017$302,093
 $254,005
December 31, 2016371,261
 316,532

The following is a summary of the changes in accretable yield for these loans:
Balance at December 31, 2016 $167,928
Accretion (31,144)
Reclassifications to non-accretable difference(A)
 (902)
Balance at September 30, 2017 $135,882

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

Noncontrolling Interests

Others’ interests in the equity of the Consumer Loan Companies is computed as follows:
  September 30, 2017 December 31, 2016
Total Consumer Loan Companies equity $73,720
 $75,311
Others’ ownership interest 46.5% 46.5%
Others’ interests in equity of consolidated subsidiary $34,276
 $35,020

Others’ interests in the Consumer Loan Companies’ net income (loss) is computed as follows:
 Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
 2017 2016 2017 2016
Net Consumer Loan Companies income (loss)$26,616
 $28,655
 $74,580
 $60,118
Others’ ownership interest as a percent of total46.5% 46.5% 46.5% 46.5%
Others’ interest in net income (loss) of consolidated subsidiaries$12,376
 $13,325
 $34,679
 $27,955


42
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

Variable Interest Entities

The Consumer Loan Companies consolidate certain entities that issued securitized 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 following table presents information on the combined assets and liabilities related to these consolidated VIEs.
  As of
  September 30, 2017
Assets  
Consumer loans, held-for-investment $1,365,498
Restricted cash 11,965
Accrued interest receivable 19,890
Total assets(A)
 $1,397,353
Liabilities  
Notes and bonds payable(B)
 $1,364,186
Accounts payable and accrued expenses 4,834
Total liabilities(A)
 $1,369,020

(A)The creditors of the Consumer Loan SPVs do not have recourse to the general credit of New Residential, and the assets of the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.
(B)Includes $121.0 million of bonds retained by New Residential issued by these VIEs.

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 will account 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. New Residential’s investment in LoanCo is recorded as Investment in Consumer Loans, Equity Method Investees. LoanCo has elected to account for its investments in consumer loans at fair value. New Residential has elected to record LoanCo’s activity on a one month lag.

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 (“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. Warrantco is vested in the warrants to purchase an aggregate of 51.2 million Series F convertible preferred stock in ParentCo as of August 31, 2017. 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 stockenters into which such shares of convertible preferred stock could be converted, and will have liquidation rights in the event of liquidation. New Residential will account for its investment in WarrantCo pursuant to the equity method of accounting because it can exercise significant influence over WarrantCo but the requirements for consolidation are not met. New Residential’s investment in WarrantCo is recorded as Investment in Consumer Loans, Equity Method Investees. WarrantCo has elected to account for its investments in warrants at fair value. New Residential has elected to record WarrantCo’s activity on a one month lag.


43
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

The following tables summarize the investment in LoanCo and WarrantCo held by New Residential:
  
September 30, 2017(A)
Consumer loans, at fair value $231,839
Warrants 32,500
Other assets 55,821
Warehouse financing (149,185)
Other liabilities (942)
Equity $170,033
New Residential’s investment $42,044
New Residential’s ownership 24.7%

  
Three Months Ended 
 September 30, 2017(A)
 
Nine Months Ended  
 September 30, 2017(A)
Interest income $12,276
 $25,105
Interest expense (2,635) (5,768)
Change in fair value of consumer loans and warrants 12,475
 16,030
Gain on sale of consumer loans(B)
 6,928
 18,778
Other expenses (1,459) (3,039)
Net income $27,585
 $51,106
New Residential’s equity in net income $6,769
 $12,649
New Residential’s ownership 24.5% 24.8%

(A)Data as of, and for the periods ended, August 31, 2017, as a result of the one month reporting lag.
(B)
During the nine months endedSeptember 30, 2017, LoanCo sold, through securitizations which were treated as sales for accounting purposes, $1.1 billion in UPB of consumer loans. LoanCo retained $121.3 million of residual interests in the securitizations and distributed them to the LoanCo co-investors, including New Residential.

The following is a summary of LoanCo’s consumer loan investments:
 Unpaid Principal Balance Interest in Consumer Loans Carrying Value Weighted Average Coupon 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
September 30, 2017(C)
$231,839
 25.0% $231,839
 16.4% 1.4 0.3%

(A)Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)Data as of August 31, 2017 as a result of the one month reporting lag.

New Residential’s investment in LoanCo and WarrantCo changed as follows:
 Nine Months Ended 
 September 30, 2017
Balance at beginning of period$—
Contributions to equity method investees344,902
Distributions of earnings from equity method investees(4,291)
Distributions of capital from equity method investees(306,938)
Earnings from investments in consumer loans, equity method investees12,649
Balance at end of period$46,322

44
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

10.DERIVATIVES
As of September 30, 2017, New Residential’s derivative instruments included economic hedges that were not designated as hedges for accounting purposes. New Residential uses economic hedgesincluding interest rate swaps and TBAs 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
40
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
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 September 30, 2017, New Residential heldmay at times hold to-be-announced forward contract positions (“TBAs”) of $2.7 billion in a short notional amount of Agency RMBS and any amounts or obligations owed by or to New Residential are subject to the right of set-off with the TBA counterparty. New Residential’s net short position in TBAs was entered into as an economic hedge in order to mitigate New Residential’s interest rate risk on certain specified mortgage backed securities. As of September 30, 2017, New Residential separately held TBAs of $1.7 billion in a long notional amount of Agency RMBSsecurities and any amountsMSRs. 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 enteredmay enter into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements, and various other provisions. Changes in the value of derivatives designed to protect against mortgage backed securities and MSR fair value fluctuations, or hedging gains and losses, are reflected in the tables below.

As of September 30, 2021, New Residential has fulfilled all obligationsalso 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 requirements enteredforward 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 under these agreements.forward loan sale and securities delivery commitments in order to hedge the exposure related to IRLCs and mortgage loans that are not covered by mortgage loan sale commitments.


New Residential’s derivativesDerivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:
Balance Sheet LocationSeptember 30, 2021December 31, 2020
Derivative assets
Interest rate lock commitmentsOther assets$144,365 $289,355 
TBAsOther assets122,539 789 
$266,904 $290,144 
Derivative liabilities
Interest rate swaps(A)
Accrued expenses and other liabilities$1,082 $25 
Interest rate lock commitmentsAccrued expenses and other liabilities19,983 281 
Treasury futures and options on treasury futuresAccrued expenses and other liabilities11,542 — 
TBAsAccrued expenses and other liabilities22,159 119,456 
$54,766 $119,762 
 Balance Sheet Location September 30, 2017 December 31, 2016
Derivative assets     
Interest Rate CapsOther assets $2,232
 $4,251
TBAsOther assets 8,212
 2,511
   $10,444
 $6,762
Derivative liabilities     
Interest Rate Swaps(A)
Accrued expenses and other liabilities $82
 $3,021
   $82
 $3,021
(A)Net of $60.0 million and $237.7 million of related variation margin balances as of September 30, 2021 and December 31, 2020, respectively.

(A)Net of $5.6 million of related variation margin accounts.

The following table summarizes notional amounts related to derivatives:
September 30, 2021December 31, 2020
Interest rate swaps(A)
$11,890,000 $6,515,000 
Interest rate lock commitments16,611,634 15,031,345 
TBAs, short position(B)
35,056,236 23,529,408 
Treasury futures655,400 — 
Options on treasury futures4,200,000 — 
(A)Includes $11.9 billion notional of receive LIBOR/pay fixed of 1.47% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 34 months and 0 months, respectively, as of September 30, 2021. Includes $6.5 billion notional of receive LIBOR/pay fixed of 2.21% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 47 months and 0 months, respectively, as of December 31, 2020.
(B)Represents the notional amount of Agency RMBS, classified as derivatives.

41
 September 30, 2017 December 31, 2016
TBAs, short position(A)
$2,731,000
 $3,465,500
TBAs, long position(A)
1,730,000
 2,125,552
Interest Rate Caps(B)
897,500
 1,185,000
Interest Rate Swaps(C)
3,713,500
 3,640,000

(A)Represents the notional amount of Agency RMBS, classified as derivatives.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(B)Caps LIBOR at 0.50% for $550.0 million of notional, at 0.75% for $12.5 million of notional, at 2.00% for $185.0 million of notional, and at 4.00% for $150.0 million of notional. The weighted average maturity of the interest rate caps as of September 30, 2017 was 11 months.
(C)Receive LIBOR and pay a fixed rate. The weighted average maturity of the interest rate swaps as of September 30, 2017 was 26 months and the weighted average fixed pay rate was 1.68%.


45
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

The following table summarizes all income (losses) recorded in relation to derivatives:gain (loss) on derivatives and the related location on the Consolidated Statements of Income:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Servicing revenue, net(A)
TBAs$(14,156)$— $(14,355)$— 
Treasury futures(19,093)— (19,093)— 
Options on treasury futures(8,116)— (8,116)— 
(41,365)— (41,564)— 
Gain on originated mortgage loans, held-for-sale, net(A)
Interest rate lock commitments(101,411)82,019 (281,094)206,073 
TBAs152,182 (6,013)251,731 (23,428)
Forward loan sale commitments— — — 27 
50,771 76,006 (29,363)182,672 
Change in fair value of investments(A)
Interest rate swaps45,389 23,089 214,367 4,213 
45,389 23,089 214,367 4,213 
Gain (loss) on settlement of investments, net(C)
Interest rate swaps(36,314)(23,192)(105,386)(62,039)
TBAs(B)
(37,664)— (47,527)(71,060)
(73,978)(23,192)(152,913)(133,099)
Total income (loss)$(19,183)$75,903 $(9,473)$53,786 
(A)Represents unrealized gain (loss).
(B)Excludes $105.6 million loss and $68.8 million loss for the three months ended September 30, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net (Note 8). Excludes $48.5 million gain and $290.7 million loss for the nine months ended September 30, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net.
(C)Excludes $13.4 million loss and $0.0 million for the three months ended September 30, 2021 and 2020, respectively, included within Servicing revenue, net (Note 5). Excludes $11.1 million loss and $0.0 million for the nine months ended September 30, 2021 and 2020, respectively, included within Servicing revenue, net.

42
  For the  
 Three Months Ended 
 September 30,		 For the  
 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Other income (loss), net(A)
        
TBAs $(657) $10,502
 $880
 $(22)
Interest Rate Caps (1,083) 463
 (1,353) (3,683)
Interest Rate Swaps 5,300
 10,083
 349
 (11,407)
  3,560
 21,048
 (124) (15,112)
Gain (loss) on settlement of investments, net        
TBAs (16,579) (15,922) (45,989) (55,159)
Interest Rate Caps 322
 —
 (240) (1,124)
Interest Rate Swaps (2,499) (3,003) (12,097) (7,416)
  (18,756) (18,925) (58,326) (63,699)
Total income (losses) $(15,196) $2,123
 $(58,450) $(78,811)

(A)Represents unrealized gains (losses).


NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
11.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DEBT OBLIGATIONS(dollars in tables in thousands, except share and per share data) 
11.    DEBT OBLIGATIONS
 
The following table presents certain information regarding New Residential’sSecured Financing Agreements and Secured Notes and Bonds Payable debt obligations:
September 30, 2021December 31, 2020
Collateral
Debt Obligations/CollateralOutstanding Face Amount
Carrying Value(A)
Final Stated Maturity(B)
Weighted Average Funding CostWeighted Average Life (Years)Outstanding FaceAmortized Cost BasisCarrying ValueWeighted Average Life (Years)
Carrying Value(A)
Secured Financing Agreements(C)
Repurchase Agreements:
Warehouse Credit Facilities-Residential Mortgage Loans(F)
$12,923,024 $12,919,922 Oct-21 to Sep-252.01 %0.8$13,774,859 $13,775,860 $13,803,756 23.9$4,039,564 
Agency RMBS(D)
8,956,064 8,956,064 Oct-21 to Jan-220.16 %0.18,876,431 9,158,455 9,321,370 6.612,682,427 
Non-Agency RMBS(E)
723,486 723,486 Oct-21 to Dec-212.52 %0.013,927,317 905,336 987,803 3.3817,209 
Real Estate Owned(G)(H)
160,512 160,513 Oct-21 to Sep-252.91 %1.2N/A230,128 224,580 4.58,480 
Total Secured Financing Agreements22,763,086 22,759,985 1.31 %0.517,547,680 
Secured Notes and Bonds Payable
Excess MSRs(I)
248,061 248,061  Aug-253.74 %3.984,829,582 281,142 348,080 6.3275,088 
MSRs(J)
3,629,810 3,617,850 Mar-22 to Jul-263.69 %3.2531,851,913 6,029,066 6,477,289 6.12,691,791 
Servicer Advance Investments(K)
381,286 380,420 Apr-22 to Dec-221.30 %1.1408,085 453,442 472,004 6.0423,144 
Servicer Advances(K)
2,347,819 2,342,335 Nov-21 to Sep-232.34 %1.42,796,796 2,782,622 2,782,622 0.72,585,575 
Residential Mortgage Loans(L)
1,170,838 1,162,080 Sep-22 to Jul-432.10 %3.61,192,146 1,311,940 1,313,998 20.01,039,838 
Consumer Loans(M)
492,999 497,346 Sep-372.04 %3.6485,966 496,573 547,548 3.3628,759 
Total Secured Notes and Bonds Payable8,270,813 8,248,092 2.87 %2.77,644,195 
Total/ Weighted Average$31,033,899 $31,008,077 1.72 %1.1$25,191,875 
(A)Net of deferred financing costs.
(B)All debt obligations with a stated maturity through the date of issuance were refinanced, extended or repaid.
(C)These secured financing agreements had approximately $65.7 million of associated accrued interest payable as of September 30, 2021.
(D)All Agency RMBS repurchase agreements have a fixed rate. Collateral carrying value includes $341.8 million margin receivable.
(E)All Non-Agency RMBS secured financing agreements have LIBOR-based floating interest rates. This also includes repurchase agreements and related collateral of $12.3 million and $16.5 million, respectively, on retained bonds collateralized by Agency MSRs. Collateral carrying value includes $2.4 million margin receivable.
(F)Includes $266.4 million of repurchase agreements which bear interest at a fixed rate of 4.0%. All remaining repurchase agreements have LIBOR-based floating interest rates.
(G)All repurchase agreements have LIBOR-based floating interest rates.
(H)Includes financing collateralized by receivables including claims from FHA on Ginnie Mae EBO loans for which foreclosure has been completed and for which New Residential has made or intends to make a claim on the FHA guarantee as well as $152.6 million of financing collateralized by a portion of our single family rental portfolio.
(I)Includes $248.1 million of corporate loans which bear interest at a fixed rate of 3.7%.
(J)Includes $1.3 billion 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 2.8% to 4.5%; $99.9 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.9%; and $2.2 billion of capital markets notes with fixed interest rates ranging 3.0% to 5.4%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR Financing Receivables that secure these notes.
(K)$1.8 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 1.1% to 1.9%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and MSR financing receivables owned by NRM.
(L)Represents (i) a $5.8 million note payable to Mr. Cooper which includes a $1.6 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.9%, (ii) $30.4 million face amount of SAFT 2013-1
43

 September 30, 2017 December 31, 2016
            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)
 $1,846,934
 $1,846,934
 Oct-17 to Nov-17 1.35% 0.1 $1,845,992
 $1,905,003
 $1,907,360
 0.3 $1,764,760
Non-Agency RMBS (E)
 4,316,544
 4,316,544
 Oct-17 to Jan-18 2.76% 0.1 11,050,796
 5,024,799
 5,404,713
 7.7 2,654,242
Residential Mortgage Loans(F)
 1,584,033
 1,581,980
 Oct-17 to Feb-19 3.75% 0.3 2,136,065
 1,907,212
 1,890,819
 4.3 686,412
Real Estate Owned(G)(H)
 102,703
 102,570
 Oct-17 to Feb-19 3.57% 0.5 N/A
 N/A
 145,939
 N/A 85,217
Total Repurchase Agreements 7,850,214
 7,848,028
   2.64% 0.1         5,190,631
Notes and Bonds Payable                    
Secured Corporate Notes(I)
 583,686
 583,415
 Jun-19 to Jul-22 4.98% 2.9 263,232,259
 1,085,585
 1,212,791
 5.9 729,145
MSRs(J)
 1,097,085
 1,096,380
 Feb-18 to Apr-22 5.28% 2.3 223,999,150
 1,949,608
 2,145,609
 6.2 —
Servicer Advances(K)
 4,081,010
 4,073,283
 Nov-17 to Dec-21 3.29% 2.2 4,297,775
 4,591,210
 4,680,637
 4.5 5,549,872
Residential Mortgage Loans(L)
 143,207
 143,207
 Oct-17 to Apr-20 3.61% 2.5 234,686
 184,639
 184,639
 7.9 8,271
Consumer Loans(M)
 1,340,943
 1,337,708
 Dec-21 to Mar-24 3.35% 3.2 1,472,792
 1,473,353
 1,467,752
 3.5 1,700,211
Receivable from government agency(L)
 2,974
 2,974
 Oct-17 3.78% 1.1 N/A
 N/A
 2,792
 N/A 3,106
Total Notes and Bonds Payable 7,248,905
 7,236,967
   3.75% 2.5         7,990,605
Total/ Weighted Average $15,099,119
 $15,084,995
   3.17% 1.3         $13,181,236

(A)Net of deferred financing costs.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(B)All debt obligations with a stated maturity of October 2017 were refinanced, extended or repaid.

46
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

(C)These repurchase agreements had approximately $18.4 million of associated accrued interest payable as of September 30, 2017.
(D)All of the Agency RMBS repurchase agreements have a fixed rate. Collateral amounts include approximately $1.8 billion of related trade and other receivables.
(E)All of the Non-Agency RMBS repurchase agreements have LIBOR-based floating interest rates. This includes repurchase agreements of $160.3 million on retained servicer advance and consumer loan bonds.
(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 $213.7 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.75%, and includes $370.0 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.75%mortgage-backed securities issued with a fixed interest rate of 3.8% (see Note 12 for fair value details), (iii) $46.5 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.6% (see Note 12 for fair value details), (iv) $232.2 million of bonds held by third parties which bear interest at a fixed rate ranging from 3.6% to 5.0%, (v) a $105.8 million note payable collateralized by SFR with a fixed interest rate of 2.75%, and (vi) $750.0 million securitization backed by a revolving warehouse facility to finance newly originated first-lien, fixed- and adjustable-rate mortgage loans which bears interest equal to one-month LIBOR plus 1.13% (refer to Note 13 for further discussion). The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the Excess MSRs that secure these notes.
(J)Includes $290.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.25%, $232.9 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.75%, $74.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.50%, and $500.2 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.00%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and mortgage servicing rights financing receivable that secure these notes.
(K)$3.8 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 1.9% to 2.4%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and mortgage servicing rights financing receivables owned by NRM.
(L)Represents: (i) a $10.8 million note payable to Nationstar that bears interest equal to one-month LIBOR plus 2.88% and (ii) $135.4 million of asset-backed notes held by third parties which bear interest equal to 3.60%.
(M)Includes the SpringCastle debt, which is comprised of the following classes of asset-backed notes held by third parties: $1.0 billion UPB of Class A notes with a coupon of 3.05% and a stated maturity date in November 2023; $210.8 million UPB of Class B notes with a coupon of 4.10% and a stated maturity date in March 2024; $18.3 million UPB of Class C-1 notes with a coupon of 5.63% and a stated maturity date in March 2024; $18.3 million UPB of Class C-2 notes with a coupon of 5.63% and a stated maturity date in March 2024. Also includes a $86.3 million face amount note collateralized by newly originated consumer loans which bears interest equal to 4.00%.

As of September 30, 2017, New Residential had no outstanding repurchase agreements where(M)Includes 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 agreementsSpringCastle debt, which is defined as the excess of carrying amount (or market value, if higher than the carrying amount)primarily composed 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 amountfollowing classes of the repurchase liability (adjusted for accrued interest)asset-backed notes held by third parties: $440.0 million UPB of Class A notes with a coupon of 2.0% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.7% and a stated maturity date in September 2037 (collectively, “SCFT 2020-A”).


General


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


As of September 30, 2021, New Residential has margin exposure on $7.9$22.8 billion of repurchase agreements as of September 30, 2017.secured financing agreements. To the extent that the value of the collateral underlying these repurchasesecured financing agreements declines, New Residential may be required to post margin, which could significantly impact its liquidity.
 

Activities related to the carrying value of debt obligations were as follows:
Excess MSRsMSRs
Servicer Advances(A)
Real Estate SecuritiesResidential Mortgage Loans and REOConsumer LoansTotal
Balance at December 31, 2020$275,088 $2,691,791 $3,008,719 $13,499,636 $5,087,882 $628,759 $25,191,875 
Secured Financing Agreements
Acquired borrowings, net of discount— — — — 7,090,577 — 7,090,577 
Borrowings— — — 54,297,394 90,195,545 — 144,492,939 
Repayments— — — (58,118,431)(88,254,304)— (146,372,735)
Capitalized deferred financing costs, net of amortization— — — 951 573 — 1,524 
Secured Notes and Bonds Payable
Acquired borrowings, net of discount— 1,045,000 76,772 — — — 1,121,772 
Borrowings— 2,422,470 2,124,459 — 855,890 — 5,402,819 
Repayments(27,027)(2,544,885)(2,488,913)— (727,452)(132,167)(5,920,444)
Unrealized gain on notes, fair value— — — — (5,999)754 (5,245)
Capitalized deferred financing costs, net of amortization— 3,474 1,718 — (197)— 4,995 
Balance at September 30, 2021$248,061 $3,617,850 $2,722,755 $9,679,550 $14,242,515 $497,346 $31,008,077 
(A)New Residential net settles daily borrowings and repayments of the Secured Notes and Bonds Payable on its servicer advances.


47
44
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

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, 2016$729,145
 $—
 $5,549,872
 $4,419,002
 $783,006
 $1,700,211
 $13,181,236
Repurchase Agreements:             
Borrowings—
 —
 —
 35,275,158
 1,438,585
 —
 36,713,743
Repayments—
 —
 —
 (33,530,682) (526,536) —
 (34,057,218)
Capitalized deferred financing costs, net of amortization—
 —
 —
 —
 871
 —
 871
Notes and Bonds Payable:            
Borrowings1,300,354
 1,098,058
 4,022,655
 —
 140,323
 —
 6,561,390
Repayments(1,450,922) (973) (5,502,088) —
 (5,518) (364,011) (7,323,512)
Discount on borrowings, net of amortization—
 —
 (156) —
 —
 1,335
 1,179
Capitalized deferred financing costs, net of amortization4,838
 (705) 3,000
 —
 —
 173
 7,306
Balance at September 30, 2017$583,415
 $1,096,380
 $4,073,283
 $6,163,478
 $1,830,731
 $1,337,708
 $15,084,995

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

Maturities
 
New Residential’sContractual maturities of debt obligations as of September 30, 2017 had contractual maturities2021 are as follows:
Year Ending
Nonrecourse(A)
Recourse(B)
Total
October 1 through December 31, 2021$— $13,742,872 $13,742,872 
20221,432,049 6,338,673 7,770,722 
20231,365,913 3,245,451 4,611,364 
2024750,000 952,951 1,702,951 
2025232,200 2,141,348 2,373,548 
2026 and thereafter569,976 812,466 1,382,442 
$4,350,138 $27,233,761 $31,583,899 
Year Nonrecourse Recourse Total
October 1 through December 31, 2017 $185,907
 $7,624,943
 $7,810,850
2018 829,678
 832,334
 1,662,012
2019 1,551,725
 370,639
 1,922,364
2020 511,622
 —
 511,622
2021 1,223,797
 —
 1,223,797
2022 and thereafter 1,254,602
 713,872
 1,968,474
  $5,557,331
 $9,541,788
 $15,099,119
(A)Reflects secured notes and bonds payable of $4.4 billion.

(B)Reflects secured financing agreements and secured notes and bonds payable of $22.8 billion and $4.4 billion, respectively.

Borrowing Capacity


The following table represents New Residential’s borrowing capacity as of September 30, 2017:2021:
Debt Obligations / CollateralBorrowing CapacityBalance Outstanding
Available Financing(A)
Secured Financing Agreements
Residential mortgage loans and REO$4,379,092 $1,999,295 $2,379,797 
New loan originations21,103,010 11,834,240 9,268,770 
Secured Notes and Bonds Payable
Excess MSRs286,380 248,061 38,319 
MSRs4,685,450 3,629,810 1,055,640 
Servicer advances4,554,990 2,729,105 1,825,885 
Residential mortgage loans200,000 105,825 94,175 
$35,208,922 $20,546,336 $14,662,586 
Debt Obligations / Collateral Collateral Type Borrowing Capacity Balance Outstanding Available Financing
Repurchase Agreements        
Residential Mortgage Loans Residential mortgage loans and REO $2,890,000
 $1,686,736
 $1,203,264
Notes and Bonds Payable        
Secured Corporate Loan Excess MSRs 750,000
 370,000
 380,000
MSRs MSRs 700,000
 596,898
 103,102
Servicer Advances(A)
 Servicer advances 2,339,192
 1,474,512
 864,680
Consumer Loans Consumer loans 150,000
 86,343
 63,657
    $6,829,192
 $4,214,489
 $2,614,703
(A)Although available financing is uncommitted, New Residential’s unused borrowing capacity is available if it has additional eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements, including any applicable advance rate.

(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 0.1% fee on the unused borrowing capacity. Excludes borrowing capacity and outstanding debt for retained Non-Agency bonds collateralized by servicer advances with a current face amount of $93.5 million.

48
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 



Certain of the debt obligations are subject to customary loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in ourNew Residential’s equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. New Residential was in compliance with all of its debt covenants as of September 30, 2017.2021.


2025 Senior Unsecured Notes


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

The 2025 Senior Notes mature on October 15, 2025 and the Company may redeem some or all of the 2025 Senior Notes at the Company’s option, at any time from time to time, on or after October 15, 2022 at a price equal to the following fixed redemption prices (expressed as a percentage of principal amount of the 2025 Senior Notes to be redeemed):
45
12.NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
FAIR VALUE MEASUREMENTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 

YearPrice
2022103.125%
2023101.563%
2024 and thereafter100.000%

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

Net proceeds from the offering were approximately $544.5 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by the Company. The Company incurred fees of approximately $8.3 million in relation to the issuance of the 2025 Senior Notes. These fees were capitalized as debt issuance cost and are grouped and presented as part of Unsecured Senior Notes, Net of Issuance Costs on the Consolidated Balance Sheets. For the three and nine months ended September 30, 2021, the Company recognized interest expense of $8.6 million and $25.7 million, respectively. At September 30, 2021, the unamortized debt issuance costs was approximately $7.1 million.

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

The 2025 Senior Notes contain financial covenants and other non-financial covenants, including, among other things, limits on the ability of the Company and its restricted subsidiaries to incur certain indebtedness (subject to various exceptions), requires that the Company maintain total unencumbered assets (as defined in the debt agreement) of not less than 120% of the aggregate principal amount of the outstanding unsecured debt, and imposes certain requirements in order for the Company to merge or consolidate with or transfer all or substantially all of its assets to another person, in each case subject to certain qualifications set forth in the debt agreement. If the Company were to fail to comply with these covenants, after the expiration of the applicable cure periods, the debt maturity could be accelerated or other remedies could be sought by the lenders. As of September 30, 2021, the Company was in compliance with all covenants.

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

46
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
12.    FAIR VALUE MEASUREMENTS

The carrying values and fair values of New Residential’s assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of September 30, 20172021 were as follows:

Fair Value
Principal Balance or Notional AmountCarrying ValueLevel 1Level 2Level 3Total
Assets
Excess MSRs(A)
$60,598,856 $270,180 $— $— $270,180 $270,180 
Excess MSRs, equity method investees(A)
24,230,726 89,108 — — 89,108 89,108 
MSRs and MSR financing receivables(A)
549,824,561 6,565,267 — — 6,565,267 6,565,267 
Servicer advance investments408,085 472,004 — — 472,004 472,004 
Real estate and other securities25,494,437 9,973,795 — 8,982,687 991,108 9,973,795 
Residential mortgage loans, held-for-sale164,940 144,743 — — 146,906 146,906 
Residential mortgage loans, held-for-sale, at fair value13,663,696 13,972,557 — 12,150,003 1,822,554 13,972,557 
Residential mortgage loans, held-for-investment, at fair value657,427 595,012 — — 595,012 595,012 
Residential mortgage loans subject to repurchase1,826,620 1,826,620 — 1,826,620 — 1,826,620 
Consumer loans486,350 547,795 — — 547,795 547,795 
Derivative assets51,930,667 266,904 — 122,539 144,365 266,904 
Notes receivable54,092 51,663 — — 51,663 51,663 
      Loans receivable233,339 233,339 — — 233,339 233,339 
Cash and cash equivalents1,366,678 1,366,678 1,366,678 — — 1,366,678 
Restricted cash194,745 194,745 194,745 — — 194,745 
Other assets(B)
N/A39,902 4,834 — 35,068 39,902 
$36,610,312 $1,566,257 $23,081,849 $11,964,369 $36,612,475 
Liabilities
Secured financing agreements$22,763,086 $22,759,985 $— $22,759,985 $— $22,759,985 
Secured notes and bonds payable(C)
8,270,813 8,248,092 — 750,000 7,527,636 8,277,636 
Unsecured senior notes, net of issuance costs542,849 542,849 — — 555,550 555,550 
Residential mortgage loan repurchase liability1,826,620 1,826,620 — 1,826,620 — 1,826,620 
Derivative liabilities16,482,604 54,766 — 34,783 19,983 54,766 
Contingent considerationN/A9,299 — — 9,299 9,299 
$33,441,611 $— $25,371,388 $8,112,468 $33,483,856 
(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs, MSR financing receivables and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.
(B)Excludes the indirect equity investment in a commercial redevelopment project that is accounted for at fair value on a recurring basis based on the NAV of New Residential’s investment. The investment had a fair value of $31.7 million as of September 30, 2021.
(C)Includes SAFT 2013-1, MDST Trust, RPL Securitization Trust and SCFT 2020-A mortgage backed securities issued for which the fair value option for financial instruments was elected and resulted in a fair value of $798.2 million as of September 30, 2021.


47
     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)
$228,173,728
 $1,178,308
 $—
 $—
 $1,178,308
 $1,178,308
Excess mortgage servicing rights, equity method investees, at fair value(A)
53,675,234
 175,633
 —
 —
 175,633
 175,633
Mortgage servicing rights, at fair value(A)
177,285,425
 1,702,749
 —
 —
 1,702,749
 1,702,749
Mortgage servicing rights financing receivable, at fair value67,052,949
 607,396
 —
���
—
 607,396
 607,396
Servicer advance investments, at fair
    value
3,651,705
 4,044,802
 —
 —
 4,044,802
 4,044,802
Real estate securities, available-for-sale13,030,161
 6,714,846
 —
 1,190,656
 5,524,190
 6,714,846
Residential mortgage loans, held-for-investment820,544
 702,227
 —
 —
 713,665
 713,665
Residential mortgage loans, held-for-sale1,619,737
 1,426,751
 —
 —
 1,474,430
 1,474,430
Consumer loans, held-for-investment1,472,973
 1,467,933
 —
 —
 1,483,223
 1,483,223
Derivative assets5,358,500
 10,444
 —
 10,444
 —
 10,444
Cash and cash equivalents279,760
 279,760
 279,760
 —
 —
 279,760
Restricted cash152,047
 152,047
 152,047
 —
 —
 152,047
Other assets1,427,891
 31,150
 20,900
 —
 10,250
 31,150
   $18,494,046
 $452,707
 $1,201,100
 $16,914,646
 $18,568,453
Liabilities           
Repurchase agreements$7,850,214
 $7,848,028
 $—
 $7,850,214
 $—
 $7,850,214
Notes and bonds payable7,248,905
 7,236,967
 —
 —
 7,248,265
 7,248,265
Derivative liabilities3,713,500
 82
 —
 82
 —
 82
   $15,085,077
 $—
 $7,850,296
 $7,248,265
 $15,098,561
(A)The notional amount represents the total unpaid principal balance of the residential mortgage loans underlying the MSRs and Excess MSRs. New Residential does not receive an excess mortgage servicing amount on non-performing loans in Agency portfolios.


49
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

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

Level 3
Excess MSRs(A)
Excess MSRs in Equity Method Investees(A)(B)
MSRs and MSR Financing Receivables(A)
Servicer Advance InvestmentsNon-Agency RMBS
Derivatives(C)
Residential Mortgage LoansConsumer LoansOther Assets
AgencyNon-AgencyNotes ReceivableLoans ReceivableTotal
Balance at December 31, 2020$162,645 $148,293 $99,917 $4,585,841 $538,056 $1,180,924 $289,074 $2,320,384 $685,575 $52,389 $— $10,063,098 
Transfers
Transfers from Level 3— — — — — — — (15,134)— — — (15,134)
Transfers to Level 3— — — — — — — — — — — — 
Caliber acquisition (Note 1)— — — 1,507,524 — — 116,403 — — — — 1,623,927 
Gain (loss) included in net income
Reversal for credit losses on securities(D)
— — — — — 5,020 — — — — — 5,020 
Change in fair value of excess MSRs(D)
(7,578)(6,088)— — — — — — — — — (13,666)
Change in fair value of excess MSRs, equity method investees(D)
— — 1,421 — — — — — — — — 1,421 
Servicing revenue, net(E)
— — — (372,178)— — — — — — — (372,178)
Change in fair value of servicer advance investments— — — — (6,535)— — — — — — (6,535)
Change in fair value of residential mortgage loans— — — — — — — 154,984 — — — 154,984 
Change in fair value of investments in consumer loans— — — — — — — — (13,338)— — (13,338)
Gain (loss) on settlement of investments, net5 297 — — — (28,240)— — — — — (27,938)
Other income (loss), net(D)
1 (325)— — — 14,856 (281,095)(87)— (3,243)— (269,893)
Gains (losses) included in other comprehensive income(F)
— — — — — 27,101 — — — — — 27,101 
Interest income7,368 8,820 — — 7,086 10,917 — — 14,493 4,017 2,036 54,737 
Purchases, sales and repayments
Purchases, net(G)
— — — 7,965 976,629 145,920 — 3,151,597 21,680 1,688 250,000 4,555,479 
Proceeds from sales(18)(2)— (42,075)0(164,630)— (2,821,072)— — — (3,027,797)
Proceeds from repayments(23,134)(20,104)(12,230)— (1,043,232)(200,760)— (373,106)(160,615)(3,188)(18,697)(1,855,066)
Originations and other— — — 878,190 — — — — — — — 878,190 
Balance at September 30, 2021$139,289 $130,891 $89,108 $6,565,267 $472,004 $991,108 $124,382 $2,417,566 $547,795 $51,663 $233,339 $11,762,412 
(A)Includes the recapture agreement for each respective pool, as applicable.
(B)Amounts represent New Residential’s portion of the Excess MSRs held by the respective joint ventures in which New Residential has a 50% interest.
(C)For the purpose of this table, the IRLC asset and liability positions are shown net.
(D)Gain (loss) recorded in earnings during the period are attributable to the change in unrealized gain (loss) relating to Level 3 assets still held at the reporting dates and realized gain (loss) recorded during the period.
(E)The components of Servicing Revenue, Net are disclosed in Note 5.
(F)Gain (loss) included in Unrealized Gain (Loss) on Available-for-Sale Securities, Net in the Consolidated Statements of Comprehensive Income.
(G)Net of purchase price adjustments and purchase price fully reimbursable from MSR sellers as a result of prepayment protection.

48
 Level 3  
 
Excess MSRs(A)
 
Excess MSRs in Equity Method Investees(A)(B)
 MSRs Mortgage Servicing Rights Financing Receivable Servicer Advance Investments Non-Agency RMBS  
 Agency Non-Agency     Total
Balance at December 31, 2016$381,757
 $1,017,698
 $194,788
 $659,483
 $—
 $5,706,593
 $3,543,560
 $11,503,879
Transfers(C)
               
Transfers from Level 3—
 —
 —
 —
 —
 —
 —
 —
Transfers to Level 3—
 —
 —
 —
 —
 —
 —
 —
Gains (losses) included in net income               
Included in other-than-temporary impairment on securities(D)
—
 —
 —
 —
 —
 —
 (8,736) (8,736)
Included in change in fair value of investments in excess mortgage servicing rights(D)
(9,550) (23,100) —
 —
 —
 —
 —
 (32,650)
Included in change in fair value of investments in excess mortgage servicing rights, equity method investees(D)
—
 

 6,056
 —
 —
 —
 —
 6,056
Included in servicing revenue, net(E)
—
 —
 —
 (81,986) —
 —
 —
 (81,986)
Included in change in fair value of investments in mortgage servicing rights financing receivable—
 —
 —
 —
 75,828
 —
 —
 75,828
Included in change in fair value of servicer advance investments—
 

 —
 —
 —
 70,469
 —
 70,469
Included in gain (loss) on settlement of investments, net—
 1,993
 —
 —
 —
 9,327
 18,426
 29,746
Included in other income (loss), net(D)
1,755
 193
 —
 —
 —
 —
 340
 2,288
Gains (losses) included in other comprehensive income(F)
—
 —
 —
 —
 —
 —
 259,313
 259,313
Interest income20,505
 54,733
 —
 —
 —
 446,666
 246,890
 768,794
Purchases, sales and repayments               
Purchases—
 —
 —
 1,125,252
 467,118
 9,328,137
 2,418,381
 13,338,888
Proceeds from sales—
 —
 —
 —
 —
 —
 (166,400) (166,400)
Proceeds from repayments(60,618) (135,076) (25,211) —
 —
 (11,035,170) (787,584) (12,043,659)
Ocwen Transaction (Note 5)—
 (71,982) —
 —
 64,450
 (481,220) —
 (488,752)
Balance at September 30, 2017$333,849
 $844,459
 $175,633
 $1,702,749
 $607,396
 $4,044,802
 $5,524,190
 $13,233,078
(A)Includes the recapture agreement for each respective pool.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(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 the 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 and realized gains (losses) recorded during the period.
(E)The components of Servicing revenue, net are disclosed in Note 5.
(F)These gains (losses) were included in net unrealized gain (loss) on securities in the Condensed Consolidated Statements of Comprehensive Income.


50
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

Liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
Investments
Level 3
Excess Spread FinancingAsset-Backed Securities IssuedContingent Consideration
Total
Balance at December 31, 2020$18,420 $1,662,852 $14,247 $1,695,519 
Transfers
Transfers from Level 3— — — — 
Transfers to Level 3— — — — 
Gains (losses) included in net income
Servicing revenue, net(A)
(3,537)— — (3,537)
Other income(B)
— (5,245)886 (4,359)
Purchases, sales and repayments
Proceeds from sales(15,379)— — (15,379)
Payments— (859,409)(5,834)(865,243)
Other496 — — 496 
Balance at September 30, 2021$— $798,198 $9,299 $807,497 
(A)The components of Servicing Revenue, Net are disclosed in Note 5.
(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.


49
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Excess MSRs, Excess MSRs Equity Method Investees, MSRs and MSRsMSR Financing Receivables Valuation


The following table summarizes certain information regarding the ranges and weighted averageaverages of inputs used in valuing the Excess MSRs owned directly and through equity method investees as of September 30, 2017:2021:
  
Significant Inputs(A)
  
Prepayment
Rate(B)
 
Delinquency(C)
 
Recapture
Rate(D)
 
Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)
 
Collateral Weighted Average Maturity (Years)(F)
Excess MSRs Directly Held (Note 4)          
Agency
         
Original Pools
9.4% 2.9% 30.5% 21
 23
Recaptured Pools 7.2% 3.7% 22.9% 22
 25
Recapture Agreement
7.0% 3.5% 25.8% 21
 —


8.7% 3.1% 28.5% 21
 23
Non-Agency(G)

         
Nationstar and SLS Serviced:          
Original Pools
12.2% N/A
 15.0% 15
 24
Recaptured Pools 7.0% N/A
 19.8% 22
 24
Recapture Agreement
7.0% N/A
 19.7% 20
 —
Ocwen Serviced Pools 9.2% N/A
 —% 14
 26


9.7% N/A
 3.9% 14
 26
Total/Weighted Average--Excess MSRs Directly Held
9.4% 3.1% 10.9% 16
 25


         
Excess MSRs Held through Equity Method Investees (Note 4)
         
Agency
         
Original Pools
11.0% 4.9% 34.9% 18
 22
Recaptured Pools 7.4% 4.6% 24.3% 23
 24
Recapture Agreement
7.4% 4.6% 24.2% 23
 —
Total/Weighted Average--Excess MSRs Held through Investees
9.3% 4.8% 29.8% 20
 23
           
Total/Weighted Average--Excess MSRs All Pools 9.4% 3.5% 15.0% 17
 25
           
MSRs          
Agency          
Mortgage Servicing Rights(H)
 10.2% 0.9% 25.7% 27
 21
Mortgage Servicing Rights Financing Receivable(H)
 10.4% 0.9% 14.6% 27
 21
Non-Agency          
Mortgage Servicing Rights Financing Receivable(H)
 8.3% 11.4% —% 33
 22

(A)
Significant Inputs(A)
Prepayment
Rate(B)
Delinquency(C)
Recapture
Rate(D)
Mortgage Servicing Amount or Excess Mortgage Servicing Amount (bps)(E)
Collateral Weighted by fair value of the portfolio.Average Maturity (Years)(F)
Excess MSRs Directly Held (Note 4)
(B)AgencyProjected annualized weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(C)Original PoolsProjected percentage of residential mortgage loans in the pool for which the borrower will miss its mortgage payments.
5.5% - 8.4%
(6.6%)
—% - 2.0%
(0.9%)
3.6% - 17.0%
(6.6%)
15 - 32 (21)11 - 21 (18)
Recaptured Pools
4.7% - 8.6%
(6.6%)
—% - 2.2%
(0.4%)
—% - 21.9%
(10.8%)
21 - 27 (23)19- 24 (22)
4.7% - 8.6%
(6.6%)
—% - 2.2%
(0.7%)
—% - 21.9%
(8.4%)
15 - 32 (22)11 - 24 (20)
Non-Agency(G)
(D)Mr. Cooper and SLS Serviced:Percentage of voluntarily prepaid loans that are expected to be refinanced by the related servicer or subservicer, as applicable.
(E)Original Pools
6.2% - 11.9%
(8.1%)
1.5% - 11.2%
(7.9%)
—% - 11.3%
(7.7%)
6 - 25 (15)18 - 28 (23)
Recaptured Pools
3.7% - 5.1%
(4.2%)
0.1% - 0.3%
(0.2%)
6.6% - 11.4%
(8.1%)
23 - 25 (24)21 - 23 (23)
3.7% - 11.9%
(7.4%)
0.1% - 11.2%
(7.9%)
—% - 11.4%
(7.8%)
6 - 25 (17)18 - 28 (23)
Total/Weighted average total mortgage servicing amount, in excess of the basic fee as applicable, measured in basis points (bps). A weighted average cost of subservicing of $7.26 per loan per month was used to value the agencyAverage—Excess MSRs including MSR Financing Receivables. A weighted average cost of subservicing of $12.57 per loan per month was used to value the non-agency MSRs, including MSR Financing Receivables.Directly Held
3.7% - 11.9%
(7.0%)
—% - 11.2%
(3.5%)
—% - 21.9%
(8.1%)
6 - 32 (19)11 - 28 (21)
(F)Excess MSRs Held through Equity Method Investees (Note 4)
Agency
Original Pools
6.5% - 8.4%
(6.8%)
0.7% - 1.6%
(1.1%)
3.6% - 9.7%
(5.0%)
15 - 25 (18)17- 19 (18)
Recaptured Pools
5.5% - 7.6%
(6.5%)
0.3% - 0.9%
(0.7%)
5.1% - 11.4%
(7.2%)
22 - 26 (25)20 - 23 (22)
Total/Weighted average maturity of the underlying residential mortgage loans in the pool.Average—Excess MSRs Held through Investees
5.5% - 8.4%
(6.7%)
0.3% - 1.6%
(0.8%)
3.6% - 11.4%
(6.5%)
15 - 26 (21)17 - 23 (20)

51
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
Total/Weighted Average—Excess MSRs All Pools
3.7% - 11.9%
(6.9%)
—% - 11.2%
(2.6%)
—% - 21.9%
(7.3%)
6 - 32 (20)11 - 28 (21)
MSRs and MSR Financing Receivables
Agency(H)
6.1% - 15.2%
(10.4%)
0.3% - 2.1%
(1.0%)
2.7% - 31.8%
(11.0%)
25 - 30 (28)0 - 40 (23)
Non-Agency(H)
7.2% - 43.9%
(7.1%)
0.9% - 63.2%
(10.7%)
2.0% - 24.7%
(8.5%)
26 - 85 (48)0 - 30 (24)
Ginnie Mae(H)
6.0% - 15.6%
(13.4%)
1.5% - 12.4%
(3.7%)
2.6% - 35.0%
(13.4%)
30 - 46 (39)0 - 30 (28)
Total/Weighted Average—MSRs and MSR Financing Receivables
6.0% - 43.9%
(10.5%)
0.3% - 63.2%
(3.0%)
2.0% - 35.0%
(10.0%)
25 - 85 (33)0 - 40 (24)
(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 basis points (bps). A weighted average cost of subservicing of $6.20 - $7.30 ($6.90) per loan per month was used to value the agency MSRs. A weighted average cost of subservicing of $10.60 - $16.70 ($10.80) per loan per month was used to value the Non-Agency MSRs, including MSR Financing Receivables. A weighted average cost of subservicing of $8.80 - $8.90 ($8.80) per loan per month was used to value the Ginnie Mae MSRs.
50
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

(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)For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.

(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)For certain pools, recapture rate represents the expected recapture rate with the successor subservicer appointed by NRM.

With respect to valuing the PHH-serviced MSRs and MSR financing receivables, which include a significant servicer advances receivable component, the cost of financing servicer advances receivable is assumed to be LIBOR plus 2.1%.

As of September 30, 2017,2021, a weighted average discount rate of 9.7%7.8% (range 7.5% - 8.0%) was used to value New Residential’s investments in Excess MSRs (directly and through equity method investees). As of September 30, 2017,2021, a weighted average discount rate of 9.8%7.4% (range 6.9% - 12.5%) was used to value New Residential’s investments in MSRs and a weighted average discount rate of 10.4% was used to value New Residential’s investments in mortgage servicing rights financing receivable.MSR Financing Receivables.


Servicer Advance Investments Valuation


The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing the Servicer Advance Investments, including the basic fee component of the related MSRs:
 Significant Inputs
 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)
September 30, 20171.8% 10.1% 13.2% 17.2
bps6.8% 25.6

(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.Significant Inputs
Outstanding Servicer Advances to UPB of Underlying Residential Mortgage Loans
Prepayment Rate(A)
Delinquency
Mortgage Servicing Amount(B)
Discount Rate
Collateral Weighted Average Maturity (Years)(C)
September 30, 20210.7% - 1.5% (1.5%)6.6% - 8.2% (8.2%)4.6% - 15.0% (14.8%)17.6 - 19.8 (19.7)bps5.2% - 5.7% (5.2%)21.0 - 22.2 (22.2)
(B)Mortgage servicing amount is net of 13.1 bps which represents the amount New Residential pays its servicers as a monthly servicing fee.
(C)Weighted average maturity of the underlying residential mortgage loans in the pool.
(A)Projected annual weighted average lifetime voluntary and involuntary prepayment rate using a prepayment vector.
(B)Mortgage servicing amount is net of 10.9 bps which represents the amount New Residential paid its servicers as a monthly servicing fee.
(C)Weighted average maturity of the underlying residential mortgage loans in the pool.
 
Real Estate and Other Securities Valuation
 
As of September 30, 2017, New Residential’s2021, securities valuation methodology and results are further detailed as follows:
Fair Value
Asset TypeOutstanding Face AmountAmortized Cost Basis
Multiple Quotes(A)
Single Quote(B)
TotalLevel
Agency RMBS$8,879,217 $9,161,405 $8,982,687 $— $8,982,687 2
Non-Agency RMBS(C)
16,615,220 921,874 991,108 — 991,108 3
Total$25,494,437 $10,083,279 $9,973,795 $— $9,973,795 
(A)New Residential generally obtained pricing service quotations or broker quotations from 2 sources, one of which was generally the seller (the party that sold New Residential the security) for Non-Agency RMBS. New Residential evaluates quotes received and determines one as being most representative of fair value, and does not use an average of the quotes. Even if New Residential receives two or more quotes on a particular security that come from non-selling 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
51
      Fair Value
Asset Type Outstanding Face Amount Amortized Cost Basis 
Multiple Quotes(A)
 
Single Quote(B)
 Total Level
Agency RMBS $1,123,553
 $1,195,281
 $1,190,656
 $—
 $1,190,656
 2
Non-Agency RMBS(C)
 11,906,608
 5,136,883
 5,516,426
 7,764
 5,524,190
 3
Total $13,030,161
 $6,332,164
 $6,707,082
 $7,764
 $6,714,846
  
(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 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.

52
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

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 81.8%99.3% of New Residential’s Non-Agency RMBS, the ranges and weighted averages of assumptions used by New Residential’s valuation providers are summarized in the table below. The assumptions used by New Residential’s valuation providers with respect to the remainder of New Residential’s Non-Agency RMBS were not readily available.
  Fair Value Discount Rate 
Prepayment Rate(a)
 
CDR(b)
 
Loss Severity(c)
Non-Agency RMBS $4,521,531
 2.07% to 32.75% 0.25% to 20.9% 0.1% to 9.00% 5.0 % to 100%

(a)Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.Fair ValueDiscount Rate
Prepayment Rate(a)
CDR(b)
Loss Severity(c)
Non-Agency RMBS$984,616 0.0% to 15.0% (4.7%)0.0% to 25.0% (10.1%)0.0% to 12.0% (0.8%)0.0% to 100.0% (13.7%)
(a)Represents the annualized rate of the prepayments as a percentage of the total principal balance of the pool.
(b)Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.
(c)Represents the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding balance.

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

Residential Mortgage Loans Valuation

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

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.

52
(b)NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
Represents the annualized rate of the involuntary prepayments (defaults) as a percentage of the total principal balance of the pool.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans held-for-sale, at fair value classified as Level 3:
Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Acquired loans$1,713,431 
2.8% - 7.5%
(3.5%)
1.9% - 22.4%
(13.8%)
—% - 15.8%
(0.9%)
3.0% -50.0%
(20.6%)
Originated loans109,123 4.0%6.0%3.0%50.0%
Residential mortgage loans held-for-sale, at fair value$1,822,554 

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

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing residential mortgage loans held-for-investment, at fair value classified as Level 3:
(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.Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Residential mortgage loans held-for-investment, at fair value$595,012 
6.4% - 7.5%
(6.5%)
1.9% - 11.4%
(10.6%)
2.1% - 15.8%
(3.3%)
38.4% - 57.0%
(55.3%)


Consumer Loans Valuation

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing consumer loans held-for-investment, at fair value, classified as Level 3:
(B)New Residential was unable to obtain quotations from more than one source on these securities. For approximately $7.3 million, the one source was the party that sold New Residential the security.Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Consumer loans, held-for-investment, at fair value$547,795 
7.5% - 9.7%
(7.5%)
22.3% - 34.1%
(22.3%)
4.4% - 23.6%
(4.4%)
66.0% - 92.4%
(66.0%)

Derivatives Valuation

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

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

The following table summarizes certain information regarding the ranges and weighted averages of inputs used in valuing IRLCs:
(C)Includes New Residential’s investments in interest-only notes for which the fair value option for financial instruments was elected.Fair ValueLoan Funding ProbabilityFair Value of Initial Servicing Rights (Bps)
IRLCs, net$124,382 
0.0% - 100.0%
(83.0%)
0.9 - 314.1
(120.7)


53
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Asset-Backed Securities Issued

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

The following table summarizes certain information regards the ranges and weighted averages of inputs used in valuing Asset-Backed Securities Issued:
Fair ValueDiscount RatePrepayment RateCDRLoss Severity
Asset-backed securities issued$798,198 
1.7% - 5.9%
(2.5%)
8.6% - 40.0%
(18.7%)
0.3% - 4.4%
(3.1%)
20.0% - 95.0%
(72.1%)

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, single-family rental properties, and foreclosed real estate accounted for as REO, New Residential applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.


At September 30, 2017,2021, assets measured at fair value on a nonrecurring basis were $0.8 billion.$144.3 million. The $0.8 billion$144.3 million of assets include approximately $754.4$126.6 million of residential mortgage loans held-for-sale and $73.8$17.7 million of REO. The fair value of New Residential’s residential mortgage loans, held-for-sale is estimated based on a discounted cash flow model analysis using internal pricing models and is categorized within Level 3 of the fair value hierarchy. The following table summarizes the inputs used in valuing these residential mortgage loans as of September 30, 2017:2021:
Fair Value and Carrying ValueDiscount Rate
Weighted Average Life (Years)(A)
Prepayment Rate
CDR(B)
Loss Severity(C)
Performing loans$118,755 
3.8% - 7.0%
(7.0%)
4.6 - 8.1
(4.7)
5.6% - 8.6%
(6.6%)
1.0% - 9.7%
(6.0%)
31.2% - 49.7%
(39.4%)
Non-performing loans7,822 
7.5% - 9.0%
(8.8%)
3.7 - 4.8
(3.9)
1.9% - 1.9%
(1.9%)
15.8% - 15.8%
(15.8%)
8.6% - 38.4%
(12.9%)
Total/weighted average$126,577 7.1%4.76.3%6.6%37.7%
  Fair Value and Carrying Value Discount Rate 
Weighted Average Life (Years)(A)
 Prepayment Rate 
CDR(B)
 
Loss Severity(C)
Residential Mortgage Loans            
Performing Loans $693,427
 3.8% 5.1 9.4% 1.2% 37.2%
Non-Performing Loans 60,979
 6.6% 2.9 3.0% 3.0% 30.0%
Total/Weighted Average $754,406
 4.0% 4.9 8.9% 1.3% 36.6%
(A)The weighted average life is based on the expected timing of the receipt of cash flows.

(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.
53
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES(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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

(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% (weighted average of 18%), 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 Condensed Consolidated StatementStatements of Income for three months ended September 30, 2021 consisted of a of valuation allowance of $7.0 million for residential mortgage loans and a valuation allowance of $1.7 million for REO.

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 nine months ended September 30, 2017 was an increase in net2021 consisted of a reversal of valuation allowance of approximately $18.3$39.4 million consisting of an approximately $19.6 million increase for residential mortgage loans offset byand a reversal of prior valuation allowance of $1.3$3.2 million for REO.

Loans for Which Fair Value is Only Disclosed

The following table summarizes the inputs used in valuing certain loans as of September 30, 2017:
54
  Carrying Value Fair Value Discount Rate 
Weighted Average Life (Years)(A)
 Prepayment Rate 
CDR(B)
 
Loss Severity(C)
Reverse Mortgage Loans(D)
 $9,342
 $10,748
 7.0% 4.3 N/A
 N/A
 6.2%
Performing Loans 605,007
 602,544
 7.7% 5.3 4.2% 2.6% 41.9%
Non-Performing Loans 760,223
 820,397
 5.8% 4.0 3.4% 2.9% 34.0%
Total/Weighted Average $1,374,572
 $1,433,689
 6.6% 4.6     37.3%
               
Consumer Loans $1,467,933
 $1,483,223
 9.0% 3.5 22.3% 6.3% 86.9%

(A)The weighted average life is based on the expected timing of the receipt of cash flows.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(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% participation interest New Residential holds in the portfolio of reverse mortgage loans.

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 categorized as Level 2.

Liabilities for Which Fair Value is Only Disclosed

Repurchase agreements and notes and bonds payable are not measured at fair value. They are generally considered to be Level 2 and Level 3 in the valuation hierarchy, respectively, with significant valuation variables including the amount and timing of expected cash flows, interest rates and collateral funding spreads.

Short-term repurchase agreements and short-term notes and bonds payable have an estimated fair value equal to their carrying value due to their short duration and generally floating interest rates. Longer-term notes and bonds payable are valued based on internal models utilizing both observable and unobservable inputs.


54
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

13. VARIABLE INTEREST ENTITIES

In the normal course of business, New Residential enters into transactions with special purpose entities (SPEs), which primarily consist of trusts established for a limited purpose. The SPEs have been formed for the purpose of transactions in which the Company transfers assets into an SPE in return for various forms of debt obligations supported by those assets. In these transactions, the Company typically receives cash and/or other interests in the SPE as proceeds for the transferred assets. The Company retains the right to service the transferred receivables. The Company evaluates its interests in each SPE for classification as a variable interest entity (VIE).

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. When an SPE meets the definition of a VIE and the Company determines that it is the primary beneficiary, the Company includes the SPE in its consolidated financial statements.

Consolidated VIEs

Servicer Advances

New Residential, through a taxable wholly owned subsidiary, is the managing member of the Buyer and owned approximately 89.3% of the Buyer as of September 30, 2021. In 2013, New Residential created the Buyer to acquire the then outstanding servicing advance receivables related to a portfolio of residential mortgage loans from a third party. The Buyer is required to purchase all future servicer advances made with respect to this portfolio of mortgage loans and is entitled to receive cash flows from advance recoveries and a basic fee component of the related MSRs, net of subservicing compensation paid.

The Buyer may call capital up to the commitment amount on unfunded commitments and recall capital to the extent the Buyer makes a distribution to the co-investors, including New Residential. As of September 30, 2021, the noncontrolling third-party co-investors and New Residential had previously funded their commitments, however the Buyer may recall $69.0 million and $577.1 million of capital distributed to the third-party co-investors and New Residential, respectively. Neither the third-party co-investors nor New Residential is obligated to fund amounts in excess of their respective capital commitments, regardless of the capital requirements of the Buyer.

Shelter Joint Ventures

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

Residential Mortgage Loans

During the third quarter of 2020, New Residential formed several entities that separately issued securitized debt collateralized by non-performing and reperforming residential mortgage loans. New Residential determined that these securitizations should be evaluated for consolidation under the VIE model rather than the voting interest entity model as the equity holders as a group lack the characteristics of a controlling financial interest. Under the VIE model, New Residential’s consolidated subsidiaries had both 1) the power to direct the most significant activities of the securitizations and 2) significant variable interests in each
55
13.EQUITYNEW RESIDENTIAL INVESTMENT CORP. AND EARNINGS PER SHARESUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
of the securitizations, through their control of the related optional redemption feature and their ownership of certain notes issued by the securitizations and, therefore, met the primary beneficiary criterion and, accordingly, the Company consolidated the securitizations. As of September 30, 2021, only one securitization (the “RPL Securitization Trust”) remains outstanding.

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

In May 2021, Newrez issued $750.0 million in notes through a securitization facility (the “2021-1 Securitization Facility”) that bear interest at 30-day LIBOR plus a margin. The 2021-1 Securitization Facility is secured by newly originated, first-lien, fixed- and adjustable-rate residential mortgage loans eligible for purchase by the GSEs and Ginnie Mae. Through a master repurchase agreement, Newrez sells its originated loans to the 2021-1 Securitization Facility, which then issues notes to third party qualified investors, with Newrez retaining the trust certificate. The loans serve as collateral with the proceeds from the note issuance ultimately financing the originations. The 2021-1 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial closing date, (ii) the Company exercising its right to optional prepayment in full, or (iii) a repurchase triggering event. The Company determined it is the primary beneficiary of the 2021-1 Securitization Facility as it has both (i) the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

Caliber Mortgage Participant I, LLC was formed to acquire, receive, participate, hold, release, and dispose of participation interests in certain of Caliber’s mortgage loans held for sale (“MLHFS PC”). The Caliber Mortgage Participant I, LLC transfers the MLHFS PC in exchange for cash. Caliber is the primary beneficiary of the VIE and therefore, consolidates the SPE. The transferred MLHFS PC is classified on the Consolidated Balance Sheets as Residential Mortgage Loans, Held-for-Sale and the related warehouse credit facility liabilities as part of Secured Financing Agreements. Caliber retains the risks and benefits associated with the assets transferred to the SPEs.

Caliber remains the servicer of the underlying mortgage loans and has the power to direct the SPE’s activities. Holders of the term notes issued by the Trust can look only to the assets of the Trust for satisfaction of the debt and have no recourse against Caliber.
Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of September 30, 2021, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

On September 25, 2020, certain entities comprising the Consumer Loan Companies, in a private transaction, issued $663.0 million of asset-backed notes (“SCFT 2020-A”) securitized by a portfolio of consumer loans.

The Consumer Loan Companies consolidate certain entities that issued securitized 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.

MSR Financing Facilities

CHL GMSR Issuer Trust is an SPE created for the purpose of transferring a participation certificate (“MSR PC”) representing a beneficial interest in Caliber’s GNMA MSRs in exchange for a variable funding note (“MSR Financing VFN”) and a trust certificate with Caliber, as well for the issuance of term notes in exchange for cash. Caliber consolidates this SPE because it is the primary beneficiary of the VIE. The MSR PC is classified in Mortgage Servicing Rights and MSR Financing Receivables, at Fair Value and the MSR Financing VFN and term notes are classified as Secured Notes and Bonds Payable on the Consolidated Balance Sheets. The SPE uses collections from a specified portion of GNMA MSR net service fees collected to repay principal and interest and to pay the expenses of the entity.

56
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Additionally, Caliber has also transferred a participation certificate representing a beneficial interest certain of Caliber’s GNMA servicer advances (“Servicer Advance PC”) to CHL GMSR Issuer Trust in exchange for a VFN (“Servicer Advance VFN”). The transferred Servicer Advance PC is classified on the Consolidated Balance Sheets as Servicing Advances Receivable and the related liabilities as part of Accrued Expenses and Other Liabilities. CHL GMSR Issuer Trust uses collections of the pledged advances to repay principal and interest and to pay the expenses of the Servicer Advance VFN.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on the Consolidated Balance Sheets:
The BuyerShelter Joint VenturesResidential Mortgage LoansConsumer Loan SPVsMSR Financing FacilitiesTotal
September 30, 2021
Assets
Mortgage servicing rights, at fair value$— $— $— $— $352,144 $352,144 
Servicer advance investments, at fair value459,812 — — — — 459,812 
Residential mortgage loans, held-for-investment, at fair value— — 98,373 — — 98,373 
Residential mortgage loans, held-for-sale— — 1,856 — — 1,856 
Residential mortgage loans, held-for-sale, at fair value— — 1,191,416 — — 1,191,416 
Consumer loans, held-for-investment, at fair value— — — 547,598 — 547,598 
Cash and cash equivalents37,138 37,339 2,102 — — 76,579 
Restricted cash2,377 — 170 7,430 — 9,977 
Other assets9 1,825 4,545 7,349 361,238 374,966 
Total Assets$499,336 $39,164 $1,298,462 $562,377 $713,382 $3,112,721 
Liabilities
Secured financing agreements(A)
$— $— $133,227 $— $— $133,227 
Secured notes and bonds payable(A)
374,025 — 1,048,821 497,346 367,871 2,288,063 
Accrued expenses and other liabilities925 6,570 13,848 886 106 22,335 
Total Liabilities$374,950 $6,570 $1,195,896 $498,232 $367,977 $2,443,625 
December 31, 2020
Assets
Servicer advance investments, at fair value$522,901 $— $— $— $— $522,901 
Residential mortgage loans, held-for-investment, at fair value— — 358,629 — — 358,629 
Residential mortgage loans, held-for-sale— — 346,250 — — 346,250 
Residential mortgage loans, held-for-sale, at fair value— — 614,868 — — 614,868 
Consumer loans, held-for-investment— — — 682,932 — 682,932 
Cash and cash equivalents53,012 39,031 — — — 92,043 
Restricted cash2,808 — — 8,090 — 10,898 
Other assets891 9,151 30,621 9,201 — 49,864 
Total Assets$579,612 $48,182 $1,350,368 $700,223 $— $2,678,385 
Liabilities
Secured notes and bonds payable(A)
$414,576 $— $1,034,093 $628,759 $— $2,077,428 
Accrued expenses and other liabilities1,092 9,455 1,661 764 — 12,972 
Total Liabilities$415,668 $9,455 $1,035,754 $629,523 $— $2,090,400 
(A)The creditors of the VIEs do not have recourse to the general credit of New Residential, and the assets of the VIEs are not directly available to satisfy New Residential’s obligations.

57
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Non-Consolidated VIEs

The following table comprises bonds held in unconsolidated VIEs and retained pursuant to required risk retention regulations:
As of and for the
Nine Months Ended
September 30,
20212020
Residential mortgage loan UPB$11,403,079 $14,779,498 
Weighted average delinquency(A)
4.70 %3.15 %
Net credit losses$118,958 $28,874 
Face amount of debt held by third parties(B)
$10,475,990 $12,817,104 
Carrying value of bonds retained by New Residential(C)(D)
$965,846 $1,692,841 
Cash flows received by New Residential on these bonds$260,306 $151,852 
(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by New Residential.
(C)Includes bonds retained pursuant to required risk retention regulations.
(D)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 12 for details on unobservable inputs.

Noncontrolling Interests

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

Others’ interests in the equity of consolidated subsidiaries is computed as follows:
September 30, 2021December 31, 2020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$124,386 $32,594 $88,312 $163,944 $38,727 $96,418 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.1 %46.5 %
Others’ interest in equity of consolidated subsidiary$13,283 $16,134 $41,606 $43,882 $19,402 $45,384 

Others’ interests in the net income (loss) is computed as follows:
Three Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(2,614)$6,125 $13,438 $9,761 $9,649 $9,006 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(280)$3,032 $6,249 $2,612 $4,840 $4,188 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

58
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Nine Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(4,546)$19,762 $41,855 $(162)$21,017 $50,795 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(797)$9,782 $19,463 $(44)$10,542 $23,620 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

14.    EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends


On January 26, 2017, New Residential’s boardFebruary 11, 2020, the Company priced its underwritten public offering of directors declared a first quarter 2017 dividend of $0.48 per common share or $147.5 million, which was paid on April 28, 2017 to stockholders of record as of March 27, 2017.

On June 21, 2017, New Residential’s board of directors declared a second quarter 2017 dividend of $0.50 per common share or $153.7 million, which was paid on July 28, 2017 to stockholders of record as of July 3, 2017.

On September 22, 2017, New Residential’s board of directors declared a third quarter 2017 dividend of $0.50 per common share or $153.7 million, which was paid on October 27, 2017 to stockholders of record as of October 2, 2017.

In February 2017, New Residential issued 56.5 million shares14,000,000 of its common stock in6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a public offering at a price to the publicliquidation preference of $15.00$25.00 per share for net proceeds of approximately $834.5$389.5 million. OneThe offering closed on February 14, 2020. In connection with the offering, the underwriters exercised an option to purchase up to an additional 2,100,000 shares of New Residential’s executive officers participated in this offering and purchased 18,600 shares at the public offering price.preferred stock. 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 5.71.6 million shares of New Residential’s common stock at the public offeringclosing price per share of common stock on the pricing date, which had a fair value of approximately $8.1$1.0 million as of the grant date.

On February 16, 2021, New Residential announced that its board of directors had authorized the repurchase of up to $200.0 million of its common stock through December 31, 2021. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. No share repurchases have been made as of the date of issuance of these Consolidated Financial Statements. The assumptions usedshare repurchase program may be suspended or discontinued at any time.

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

On May 19, 2021, New Residential entered into a 2.38% risk-freeDistribution 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”). No share issuances were made during the three months ended September 30, 2021.

On September 14, 2021, the Company priced its underwritten public offering of 17,000,000 of its 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, New Residential granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to approximately 1.9 million shares of New Residential’s common stock at $10.89 per share.

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series. The table below summarizes preferred stock:
59
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Dividends Declared per Share
Number of SharesThree Months Ended
September 30,		Nine Months Ended
September 30,
SeriesSeptember 30, 2021December 31, 2020
Liquidation Preference(A)
Issuance Discount
Carrying Value(B)
2021202020212020
Series A, 7.50% issued July 2019(C)
6,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 $1.41 $1.41 
Series B, 7.125% issued August 2019(C)
11,300 11,300 282,500 3.15 %273,418 0.45 0.45 1.34 1.34 
Series C, 6.375% issued February 2020(C)
16,100 16,100 402,500 3.15 %389,548 0.40 0.40 1.20 1.20 
Series D, 7.00%, issued September 2021(D)
18,600 — 465,000 3.15 %449,506 0.28 — 0.28 — 
Total52,210 33,610 $1,305,250 $1,262,498 $1.60 $1.32 $4.23 $3.95 
(A)Each series has a liquidation preference or par value of $25.00 per share.
(B)Carrying value reflects par value less discount and issuance costs.
(C)Fixed-to-floating rate a 10.82% dividend yield, 28.64% volatilitycumulative redeemable preferred.
(D)Fixed-rate reset cumulative redeemable preferred.

On September 22, 2021, New Residential’s board of directors declared third quarter 2021 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, $0.40 per share of Preferred Series C, and a 10-year term.$0.28 per share of Preferred Series D or $2.9 million, $5.0 million, $6.4 million, and $1.2 million, respectively.


Common dividends have been declared as follows:
Declaration DatePayment DatePer ShareTotal Amounts Distributed (millions)
Quarterly Dividend
March 31, 2020April 2020$0.05 $20.8 
June 22, 2020July 20200.10 41.6 
September 23, 2020October 20200.15 62.4 
December 16, 2020January 20210.20 82.9 
March 24, 2021April 20210.20 82.9 
June 16, 2021August 20210.20 93.3 
August 23, 2021October 20210.25 116.6 

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at September 30, 2017.2021.


Common Stock Purchase Warrants

During the second quarter of 2020, the Company issued warrants (the “2020 Warrants”) in conjunction with the issuance of a term loan, which was fully repaid in the third quarter of 2020, that provide the holders the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution adjustments): approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share.

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

60
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The table below summarizes the 2020 Warrants at September 30, 2021:
Number of Warrants
(in millions)		Weighted Average Exercise Price
(per share)
Outstanding warrants - December 31, 202043.4 $6.79 
Granted— — 
Exercised— — 
Expired— — 
Outstanding warrants - September 30, 202143.4 6.58 (A)
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

Option PlanNoncontrolling Interests


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

Others’ interests in the equity of consolidated subsidiaries is computed as follows:
September 30, 2021December 31, 2020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$124,386 $32,594 $88,312 $163,944 $38,727 $96,418 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.1 %46.5 %
Others’ interest in equity of consolidated subsidiary$13,283 $16,134 $41,606 $43,882 $19,402 $45,384 

Others’ interests in the net income (loss) is computed as follows:
Three Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(2,614)$6,125 $13,438 $9,761 $9,649 $9,006 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(280)$3,032 $6,249 $2,612 $4,840 $4,188 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2017, New Residential’s outstanding options were summarized as follows:2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

58
Held by the Manager16,128,730
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
Issued to the Manager and subsequently transferred to certain of the Manager’s employees2,367,458
Issued to the independent directors6,000
Total18,502,188

The following table summarizes New Residential’s outstanding options as of September 30, 2017. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended September 30, 2017 was $16.73 per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of Unexercised
Options
 
Options
Exercisable as of
September 30, 2017
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic
Value of Exercisable Options as of
September 30, 2017
(millions)
DirectorsVarious 6,000
 6,000
 $13.99
 $—
Manager(C)
2012 25,000
 25,000
 7.19
 0.2
Manager(C)
2013 835,571
 835,571
 11.48
 4.4
Manager(C)
2014 1,437,500
 1,437,500
 12.20
 6.5
Manager(C)
2015 8,543,539
 8,072,518
 15.46
 10.3
Manager(C)
2016 2,000,000
 866,667
 14.20
 2.2
Manager(C)
2017 5,654,578
 1,319,402
 15.00
 2.3
Outstanding  18,502,188
 12,562,658
    
(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.

55
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

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

Nine Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(4,546)$19,762 $41,855 $(162)$21,017 $50,795 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(797)$9,782 $19,463 $(44)$10,542 $23,620 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

Date of Grant 
Range of Exercise
Prices
 
Total Unexercised
Inception to Date
2014 $12.20 258,750
2015 $15.25 to $15.88 1,708,708
2016 $14.20 400,000
Total   2,367,458
14.    EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends

On February 11, 2020, the Company priced its underwritten public offering of 14,000,000 of its 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $389.5 million. The following table summarizes activityoffering closed on February 14, 2020. In connection with the offering, the underwriters exercised an option to purchase up to an additional 2,100,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.6 million shares of New Residential’s outstanding options: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.

  Amount Weighted Average Exercise Price
December 31, 2016 outstanding options 13,196,610
  
Options granted 5,654,578
 $15.00
Options exercised —
 $—
Options expired unexercised (349,000)  
September 30, 2017 outstanding options 18,502,188
 See table above

Income and Earnings Per Share

On February 16, 2021, New Residential is requiredannounced that its board of directors had authorized the repurchase of up to present both basic$200.0 million of its common stock through December 31, 2021. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 or by means of one or more tender offers, in each case, as permitted by securities laws and diluted earningsother legal requirements. No share repurchases have been made as of the date of issuance of these Consolidated Financial Statements. The share repurchase program may be suspended or discontinued at any time.

On April 14, 2021, the Company priced its underwritten public offering of 45,000,000 shares of its common stock at a public offering price of $10.10 per share (“EPS”). Basic EPS is calculated by dividing net income byshare. In connection with the weighted average numberoffering, the Company granted the underwriters an option for a period of 30 days to purchase up to an additional 6,750,000 shares of common stock outstanding. Diluted EPS is computedat a price of $10.10 per share. On April 16, 2021, the underwriters exercised their option, in part, to purchase an additional 6,725,000 shares of common stock. The offering closed on April 19, 2021. To compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to 5.2 million shares of New Residential’s common stock at $10.10 per share.

On May 19, 2021, 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”). No share issuances were made during the three months ended September 30, 2021.

On September 14, 2021, the Company priced its underwritten public offering of 17,000,000 of its 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, New Residential granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to approximately 1.9 million shares of New Residential’s common stock at $10.89 per share.

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series. The table below summarizes preferred stock:
59
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Dividends Declared per Share
Number of SharesThree Months Ended
September 30,		Nine Months Ended
September 30,
SeriesSeptember 30, 2021December 31, 2020
Liquidation Preference(A)
Issuance Discount
Carrying Value(B)
2021202020212020
Series A, 7.50% issued July 2019(C)
6,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 $1.41 $1.41 
Series B, 7.125% issued August 2019(C)
11,300 11,300 282,500 3.15 %273,418 0.45 0.45 1.34 1.34 
Series C, 6.375% issued February 2020(C)
16,100 16,100 402,500 3.15 %389,548 0.40 0.40 1.20 1.20 
Series D, 7.00%, issued September 2021(D)
18,600 — 465,000 3.15 %449,506 0.28 — 0.28 — 
Total52,210 33,610 $1,305,250 $1,262,498 $1.60 $1.32 $4.23 $3.95 
(A)Each series has a liquidation preference or par value of $25.00 per share.
(B)Carrying value reflects par value less discount and issuance costs.
(C)Fixed-to-floating rate cumulative redeemable preferred.
(D)Fixed-rate reset cumulative redeemable preferred.

On September 22, 2021, New Residential’s board of directors declared third quarter 2021 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, $0.40 per share of Preferred Series C, and $0.28 per share of Preferred Series D or $2.9 million, $5.0 million, $6.4 million, and $1.2 million, respectively.

Common dividends have been declared as follows:
Declaration DatePayment DatePer ShareTotal Amounts Distributed (millions)
Quarterly Dividend
March 31, 2020April 2020$0.05 $20.8 
June 22, 2020July 20200.10 41.6 
September 23, 2020October 20200.15 62.4 
December 16, 2020January 20210.20 82.9 
March 24, 2021April 20210.20 82.9 
June 16, 2021August 20210.20 93.3 
August 23, 2021October 20210.25 116.6 

Approximately 2.4 million shares of New Residential’s common stock were held by dividing net income byFortress, through its affiliates, at September 30, 2021.

Common Stock Purchase Warrants

During the weighted average numbersecond quarter of 2020, the Company issued warrants (the “2020 Warrants”) in conjunction with the issuance of a term loan, which was fully repaid in the third quarter of 2020, that provide the holders the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution adjustments): approximately 24.6 million shares of common stock outstanding plus the additional dilutive effect, if any,at $6.11 per share and approximately 18.9 million shares of common stock equivalents during each period. New Residential’sat $7.94 per share.

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

60
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The table below summarizes the 2020 Warrants at September 30, 2017, based on the treasury stock method, New Residential had 1,846,036 and 1,845,597 dilutive common stock equivalents outstanding. During the three and nine months ended September 30, 2016, based on the treasury stock method, New Residential had 497,690 and 309,544 dilutive common stock equivalents outstanding.2021:

Number of Warrants
(in millions)		Weighted Average Exercise Price
(per share)
Outstanding warrants - December 31, 202043.4 $6.79 
Granted— — 
Exercised— — 
Expired— — 
Outstanding warrants - September 30, 202143.4 6.58 (A)
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

Noncontrolling Interests


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


Others’ interests in the equity of consolidated subsidiaries is computed as follows:
September 30, 2021December 31, 2020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$124,386 $32,594 $88,312 $163,944 $38,727 $96,418 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.1 %46.5 %
Others’ interest in equity of consolidated subsidiary$13,283 $16,134 $41,606 $43,882 $19,402 $45,384 

Others’ interests in the net income (loss) is computed as follows:
Three Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(2,614)$6,125 $13,438 $9,761 $9,649 $9,006 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(280)$3,032 $6,249 $2,612 $4,840 $4,188 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

58
14.COMMITMENTSNEW RESIDENTIAL INVESTMENT CORP. AND CONTINGENCIESSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Nine Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(4,546)$19,762 $41,855 $(162)$21,017 $50,795 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(797)$9,782 $19,463 $(44)$10,542 $23,620 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

14.    EQUITY AND EARNINGS PER SHARE
 
Litigation – FollowingEquity and Dividends

On February 11, 2020, the HLSS Acquisition, material potential claims, lawsuits, regulatory inquiries or investigations, and other proceedings,Company priced its underwritten public offering of which14,000,000 of its 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $389.5 million. The offering closed on February 14, 2020. In connection with the offering, the underwriters exercised an option to purchase up to an additional 2,100,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, is currently aware, are as follows. New Residential has not accrued losses in connection with these legal contingencies because it does not believe there is a probable and reasonably estimable loss. Furthermore,this offering, New Residential cannot reasonably estimategranted options to the rangeManager relating to 1.6 million shares of potential loss related to these legal contingenciesNew Residential’s common stock at this time. However, the ultimate outcomeclosing price per share of common stock on the pricing date, which had a fair value of approximately $1.0 million as of the proceedings described belowgrant date.

On February 16, 2021, New Residential announced that its board of directors had authorized the repurchase of up to $200.0 million of its common stock through December 31, 2021. Repurchases may have a material adverse effect on New Residential’s business, financial position or results of operations.

In addition to the matters described below,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. No share repurchases have been made as of the date of issuance of these Consolidated Financial Statements. The share repurchase program may be suspended or discontinued at any time.

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

On May 19, 2021, 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”). No share issuances were made during the three months ended September 30, 2021.

On September 14, 2021, the Company priced its underwritten public offering of 17,000,000 of its 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, New Residential granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to approximately 1.9 million shares of New Residential’s common stock at $10.89 per share.

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series. The table below summarizes preferred stock:
59
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Dividends Declared per Share
Number of SharesThree Months Ended
September 30,		Nine Months Ended
September 30,
SeriesSeptember 30, 2021December 31, 2020
Liquidation Preference(A)
Issuance Discount
Carrying Value(B)
2021202020212020
Series A, 7.50% issued July 2019(C)
6,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 $1.41 $1.41 
Series B, 7.125% issued August 2019(C)
11,300 11,300 282,500 3.15 %273,418 0.45 0.45 1.34 1.34 
Series C, 6.375% issued February 2020(C)
16,100 16,100 402,500 3.15 %389,548 0.40 0.40 1.20 1.20 
Series D, 7.00%, issued September 2021(D)
18,600 — 465,000 3.15 %449,506 0.28 — 0.28 — 
Total52,210 33,610 $1,305,250 $1,262,498 $1.60 $1.32 $4.23 $3.95 
(A)Each series has a liquidation preference or par value of $25.00 per share.
(B)Carrying value reflects par value less discount and issuance costs.
(C)Fixed-to-floating rate cumulative redeemable preferred.
(D)Fixed-rate reset cumulative redeemable preferred.

On September 22, 2021, New Residential’s board of directors declared third quarter 2021 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, $0.40 per share of Preferred Series C, and $0.28 per share of Preferred Series D or $2.9 million, $5.0 million, $6.4 million, and $1.2 million, respectively.

Common dividends have been declared as follows:
Declaration DatePayment DatePer ShareTotal Amounts Distributed (millions)
Quarterly Dividend
March 31, 2020April 2020$0.05 $20.8 
June 22, 2020July 20200.10 41.6 
September 23, 2020October 20200.15 62.4 
December 16, 2020January 20210.20 82.9 
March 24, 2021April 20210.20 82.9 
June 16, 2021August 20210.20 93.3 
August 23, 2021October 20210.25 116.6 

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at September 30, 2021.

Common Stock Purchase Warrants

During the second quarter of 2020, the Company issued warrants (the “2020 Warrants”) in conjunction with the issuance of a term loan, which was fully repaid in the third quarter of 2020, that provide the holders the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution adjustments): approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share.

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

60
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The table below summarizes the 2020 Warrants at September 30, 2021:
Number of Warrants
(in millions)		Weighted Average Exercise Price
(per share)
Outstanding warrants - December 31, 202043.4 $6.79 
Granted— — 
Exercised— — 
Expired— — 
Outstanding warrants - September 30, 202143.4 6.58 (A)
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

Option Plan

As of September 30, 2021, outstanding options were as follows:
Held by the Manager18,700,175 
Issued to the Manager and subsequently assigned to certain of the Manager’s employees2,753,980 
Issued to the independent directors6,000 
Total21,460,155 

The following table summarizes outstanding options as of September 30, 2021. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended September 30, 2021 was $11.00 per share.
Recipient
Date of
Grant/
Exercise(A)
Number of Unexercised
Options
Options
Exercisable
as of
September 30, 2021
Weighted
Average
Exercise
Price(B)
Intrinsic Value of Exercisable Options as of
September 30, 2021
(millions)
DirectorsVarious6,000 6,000 $13.46 $— 
Manager(C)
20171,130,916 1,130,916 13.78 — 
Manager(C)
20185,320,000 5,320,000 16.50 — 
Manager(C)
20196,351,000 6,000,800 15.93 — 
Manager(C)
20201,619,739 1,025,835 17.23 — 
Manager(C)
20217,032,500 862,083 10.10 0.78
Outstanding21,460,155 14,345,634 
(A)Options expire on the tenth anniversary from date of grant.
(B)The exercise prices are subject to adjustment in connection with return of capital dividends.
(C)The Manager assigned certain of its options to its employees as follows:
Date of Grant to ManagerRange of Exercise
Prices		Total Unexercised
Inception to Date
2018$16.37 to $17.841,159,833 
2019$14.96 to $16.501,270,200 
2020$16.84 to $17.23323,947 
Total2,753,980 
61
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The following table summarizes activity in outstanding options:
AmountWeighted Average Exercise Price
Outstanding options - December 31, 202014,428,655 
Granted7,032,500 $10.31 
Exercised— — 
Expired(1,000)12.36 
Outstanding options - September 30, 202121,460,155 See table above

Earnings Per Share

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

The following table summarizes the basic and diluted earnings per share calculations:
Three Months Ended
September 30, 2021		Nine Months Ended
September 30,
2021202020212020
Net income (loss)$170,681 $103,920 $617,743 $(1,459,206)
Noncontrolling interests in income of consolidated subsidiaries9,001 11,640 28,448 34,118 
Dividends on preferred stock15,533 14,359 44,249 39,938 
Net income (loss) attributable to common stockholders$146,147 $77,921 $545,046 $(1,533,262)
Basic weighted average shares of common stock outstanding466,579,920 415,744,518 446,085,657 415,665,441 
Dilutive effect of stock options and common stock purchase warrants(A)
15,702,775 5,224,108 15,608,824 — 
Diluted weighted average shares of common stock outstanding482,282,695 420,968,626 461,694,481 415,665,441 
Basic earnings per share attributable to common stockholders$0.31 $0.19 $1.22 $(3.69)
Diluted earnings per share attributable to common stockholders$0.30 $0.19 $1.18 $(3.69)
(A)Stock options and common stock purchase warrants that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share for the periods where a loss has been recorded because they would have been anti-dilutive for the period presented.

The Company excluded the following weighted-average potential common shares from the calculation of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:
Three Months Ended
September 30, 2021		Nine Months Ended
September 30,
2021202020212020
Stock options and common stock purchase warrants— — — 5,966,141 




62
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
15. COMMITMENTS AND CONTINGENCIES
Litigation — New Residential is or may bebecome, 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 results.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.

Three putative class action lawsuits have been filed against HLSS and certain of its current and former officers and directors in the United States District Court for the Southern District of New York entitled: (i) Oliveira v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-652 (S.D.N.Y.), filed on January 29, 2015; (ii) Berglan v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-947 (S.D.N.Y.), filed on February 9, 2015; and (iii) W. Palm Beach Police Pension Fund v. Home Loan Servicing Solutions,

56
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

Ltd., et al., No. 15-CV-1063 (S.D.N.Y.), filed on February 13, 2015. On April 2, 2015, these lawsuits were consolidated into a single action, which is referred to as the “Securities Action.” On April 28, 2015, lead plaintiffs, lead counsel and liaison counsel were appointed in the Securities Action. On November 9, 2015, lead plaintiffs filed an amended class action complaint. On January 27, 2016, the Securities Action was transferred to the United States District Court for the Southern District of Florida and given the Index No. 16-CV-60165 (S.D. Fla.).

The Securities Action names as defendants HLSS, former HLSS Chairman William C. Erbey, HLSS Director, President, and Chief Executive Officer John P. Van Vlack, and HLSS Chief Financial Officer James E. Lauter. The Securities Action asserts causes of action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) based on certain public disclosures made by HLSS relating to its relationship with Ocwen and HLSS’s risk management and internal controls. More specifically, the consolidated class action complaint alleges that a series of statements in HLSS’s disclosures were materially false and misleading, including statements about (i) Ocwen’s servicing capabilities; (ii) HLSS’s contingencies and legal proceedings; (iii) its risk management and internal controls; and (iv) certain related party transactions. The consolidated class action complaint also appears to allege that HLSS’s financial statements for the years ended 2012 and 2013, and the first quarter ended March 30, 2014, were false and misleading based on HLSS’s August 18, 2014 restatement. Lead plaintiffs in the Securities Action also allege that HLSS misled investors by failing to disclose, among other things, information regarding governmental investigations of Ocwen’s business practices. Lead plaintiffs seek money damages under the Exchange Act in an amount to be proven at trial and reasonable costs, expenses, and fees. On February 11, 2015, defendants filed motions to dismiss the Securities Action in its entirety. On June 6, 2016, all allegations except those regarding certain related party transactions were dismissed.

On June 15, 2017, the court entered an order preliminarily approving a settlement of the Securities Action for $6 million, certifying a settlement class, approving the form and content of notice of the settlement to class members, and setting a hearing for November 17, 2017 to determine whether the settlement should receive final approval. Should the settlement receive final approval, insurance proceeds would cover $5 million of such $6 million settlement.


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 September 30, 2017,2021, New Residential had outstanding capital commitments related to investments in the following investment types (also refer to Note 5 for MSR investment commitments and to Note 18 for additional capital commitments entered into subsequent to September 30, 2017,2021, if any):


•MSRs and servicer advancesServicer 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 subsidiary,subsidiaries, NRM isand Newrez, are generally obligated to fund future servicer advances related to the loans it isthey are obligated to service. The actual amount of future advances purchased will be based on: (a)on (i) the credit and prepayment performance of the underlying loans, (b)(ii) the amount of advances recoverable prior to liquidation of the related collateral and (c)(iii) the percentage of the loans with respect to which no additional advance obligations are made. The actual amount of future advances is subject to significant uncertainty. See Notes 5 and 6 for informationdiscussion on New Residential’s investments in MSRs and Servicer Advance Investments, respectively.


•Mortgage Origination Reserves — Newrez and Caliber, both wholly-owned subsidiaries of New Residential, currently originate, or have in the past originated, conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government insured mortgage securitizations and mortgage investors issue nonconforming private label mortgage securitizations while Newrez and Caliber respectively generally retain the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, Newrez and Caliber respectively make 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 and Caliber respectively generally have an obligation to cure the breach. If Newrez and Caliber respectively are unable to cure the breach, the purchaser may require Newrez or Caliber, as applicable, to repurchase the loan.

In addition, as issuers of Ginnie Mae guaranteed securitizations, Newrez and Caliber each hold the right to repurchase loans that are at least 90 days’ delinquent from the securitizations at their discretion. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. While Newrez and Caliber are not obligated to repurchase the delinquent loans, Newrez and Caliber generally exercise their respective options to repurchase loans that will result in an economic benefit. As of September 30, 2021, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $36.8 million and $1.8 billion, respectively. See Note 5 for information on regarding the right to repurchase delinquent loans from Ginnie Mae securities and mortgage origination.

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


63
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
•Consumer Loans — The Consumer Loan Companies have invested in loans with an aggregate of $141.0$250.1 million of unfunded and available revolving credit privileges as of September 30, 2017.2021. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at management’sNew Residential’s discretion.



Leases — Operating lease right-of-use (“ROU”) assets and Operating lease liabilities are grouped and presented as part of Other Assets and Accrued Expenses and Other Liabilities, respectively, on New Residential’s Consolidated Balance Sheets.
57
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 
New Residential, through its wholly-owned subsidiaries, has leases on office space expiring through 2033. Rent expense, net of sublease income for the three months ended September 30, 2021 and 2020 totaled $7.0 million and $3.4 million, respectively, and $14.0 million and $10.5 million for the nine months ended September 30, 2021 and 2020, respectively. The Company has leases that include renewal options and escalation clauses. The terms of the leases do not impose any financial restrictions or covenants.


As of September 30, 2021, future commitments under the non-cancelable leases are as follows:
Year EndingAmount
October 1 through December 31, 2021$11,649 
202239,173 
202327,181 
202420,032 
202515,687 
2026 and thereafter40,721 
Total remaining undiscounted lease payments154,443 
Less: imputed interest14,005 
Total remaining discounted lease payments$140,438 

The future commitments under the non-cancelable leases have not been reduced by the sublease rentals of $1.6 million due in the future periods.

Other information related to operating leases is summarized below:
September 30, 2021December 31, 2020
Weighted-average remaining lease term (years)5.63.2
Weighted-average discount rate3.7 %4.5 %

Environmental Costs — As a residential real estate owner, through its REO, New Residential is subject to potential environmental costs. At September 30, 2017,2021, New Residential is not aware of any environmental concerns that would have a material adverse effect on its consolidated financial position or results of operations.


Debt Covenants — Certain of the Company’s debt obligations are subject to loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in New Residential’s debt obligations contain various customary loan covenants (Note 11).equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. Refer to Note 11.
 
Certain Tax-Related Covenants — If New Residential is treated as a successor to Drive Shack Inc. (“Drive Shack”) under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2014, New Residential could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement executed in connection with New Residential’s spin-off from Drive Shack, Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause New Residential to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Residential as necessary to enable New Residential to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to New Residential and its tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders, and its operation as a REIT; and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2014 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the U.S. Internal Revenue Service
64
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
(“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.



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


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


In addition, the Manager is entitled to receive annual incentive compensation in an amount equal to the product of (A) 25% of the dollar amount by which (1) (a) New Residential’s funds from operations before the incentive compensation, excluding funds from operations from investments in the Consumer Loan Companies and any unrealized gains or losses from mark-to-market valuation changes on investments and debt (and any deferred tax impact thereof), per share of common stock, plus (b) earnings (or losses) from the Consumer Loan Companies computed on a level-yield basis (such that the loans are treated as if they qualified as loans acquired with a discount for credit quality as set forth in ASC No. 310-30, as such codification was in effect on June 30, 2013) as if the Consumer Loan Companies had been acquired at their GAAP basis on May 15, 2013, plus earnings (or losses) from equity method investees invested in Excess MSRs as if such equity method investees had not made a fair value election, plus gains (or losses) from debt restructuring and gains (or losses) from sales of property, and plus non-routine items, minus amortization of non-routine items, in each case per share of common stock, exceed (2) an amount equal to (a) the weighted average of the book value per share of the equity transferred by Drive Shack on the date of the spin-off and the prices per share of New Residential’s common stock in any offerings (adjusted for prior capital dividends or capital distributions) multiplied by (b) a simple interest rate of 10% per annum, multiplied by (B) the weighted average number of shares of common stock outstanding. “Funds from operations” means

58
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

net income (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and gains (or losses) from sales of property, plus depreciation on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations will be computed on an unconsolidated basis. The computation of funds from operations may be adjusted at the direction of New Residential’s independent directors based on changes in, or certain applications of, GAAP. Funds from operations is determined from the date of the spin-off and without regard to Drive Shack’s prior performance.


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


In March 2020, the Company and certain of its subsidiaries sold (collectively, the “Sale”) through a broker-dealer to 6 purchasers (collectively, “the Purchasers”) of a portfolio consisting of non-agency residential mortgage-backed securities with an aggregate face value of approximately $6.1 billion (the “Securities”). The Sale generated proceeds of approximately $3.3 billion in the aggregate, excluding any unpaid but accrued interest. The Purchasers included an entity affiliated with funds managed by an affiliate of the Manager (the “Fortress Purchaser”), which purchased approximately $1.85 billion of Securities in aggregate face value for approximately $1.0 billion. In connection with the sale of the Securities to the Fortress Purchaser, the Company agreed to exercise certain rights, including call rights, that the Company holds under the securitization
65
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
transactions with respect to the Securities sold to the Fortress Purchaser solely upon written direction by the Fortress Purchaser. Such rights include the rights, if any, to (i) amend and/or terminate the transactions contemplated by certain related residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements, (ii) acquire certain of the related residential mortgage loans, real estate owned and certain other assets in the trust subject to such residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements in connection with such amendment or termination against delivery of the applicable termination payment, and (iii) if applicable, direct certain related servicers, holders of subordinate securities and/or other applicable parties, to exercise the rights in (i) and (ii). Pursuant to such agreement, the Company and the Fortress Purchaser would share equally in any profits or losses arising from the exercise of any such rights, other than if the Company elects not to participate in the related transaction, in which case the Fortress Purchaser would realize all of the profits and bear all of the losses with respect thereto. 

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

On June 30, 2021, the Company entered into a senior credit agreement and a senior subordinated credit agreement whereby the Company, and the other lenders party thereto, made term loans to an entity affiliated with funds managed by an affiliate of the Manager. The senior loan bears cash interest at a fixed rate equal to 10.5% per annum and the senior subordinated loan bears paid-in-kind interest at a rate equal to 16.0% per annum, subject to certain adjustments as set forth in the respective credit agreements. As of September 30, 2021, the principal balance of the Company’s portion of the senior loan and the senior subordinated loan was $181.3 million and $52.0 million, respectively.

Due to affiliates is comprisedconsists of the following amounts:following:
September 30, 2017 December 31, 2016September 30, 2021December 31, 2020
Management fees$4,734
 $3,689
Management fees$8,265 $7,478 
Incentive compensation72,123
 42,197
Expense reimbursements and other2,767
 1,462
Expense reimbursements and other630 1,972 
$79,624
 $47,348
TotalTotal$8,895 $9,450 
 
Affiliate expenses and fees were comprised of:
 Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
 2017 2016 2017 2016
Management fees$14,187
 $10,536
 $41,447
 $30,552
Incentive compensation19,491
 7,075
 72,123
 13,200
Expense reimbursements(A)
125
 125
 375
 375
Total$33,803
 $17,736
 $113,945
 $44,127
(A)Included in General and Administrative Expenses in the Condensed Consolidated Statements of Income.

See Notes 4, 5, 6, 8, 11 and 14 for a discussion of transactions with Nationstar. As of September 30, 2017, 66.7%, 27.6% and 35.6%consists of the UPB of the loans underlying New Residential’s investmentsfollowing:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Management fees$24,315 $22,482 $70,154 $66,682 
Expense reimbursements(A)
125 125 375 375 
Total$24,440 $22,607 $70,529 $67,057 
(A)Included in Excess MSRs, MSRsGeneral and Servicer Advance Investments, respectively, was serviced, subserviced or master serviced by Nationstar. As of September 30, 2017, a total face amount of $3.2 billion of New Residential’s Non-Agency RMBS portfolio and approximately $24.2 million of New Residential’s Agency RMBS portfolio was serviced or master serviced by Nationstar. The total UPB of the loans underlying these Nationstar serviced Non-Agency RMBS was approximately $18.5 billion as of September 30, 2017. New Residential holds a limited right to cleanup call options with respect to certain securitization trusts serviced or master serviced by Nationstar whereby, when the outstanding balance of the underlying residential mortgage loans falls below a pre-determined threshold, it can effectively purchase the underlying residential mortgage loans at par, plus unreimbursed servicer advances, and repay all of the outstanding securitization financing at par, in exchange for a fee of 0.75% of UPB paid to Nationstar at the time of exercise. In connection with New Residential’s exercise of certain of these call rights, and certain other call rights acquired by New Residential in connection with the SLS Transaction, in 2014 and 2015, New Residential has made, and expects to continue to make, payments to funds managed by an affiliate of Fortress in respect of Excess MSRs held by the funds affected by the exercise of the call rights (“MSR Fund Payments”). During 2017, New Residential accrued for MSR Fund Payments in an aggregate amount of approximately $0.3 million and has also caused an aggregate of $0.7 million of securities to be transferred to such funds in 2017. New Residential continues to evaluate the call rights it purchased from Nationstar, and its ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. The actual UPB of the residential mortgage loans on which New Residential can successfully exercise call rights and realize the benefits therefrom may differ materially from its initial assumptions. As of September 30, 2017, $954.8 million UPB of New Residential’s residential mortgage loans and $20.2 million of New Residential’s REO were being serviced or master serviced by Nationstar. Additionally,administrative expenses in the ordinary courseConsolidated Statements of business, New Residential engages Nationstar to administer the termination of securitization trusts that it collapses pursuant to its call rights. As a result of these relationships, New Residential routinely has receivables from, and payables to, Nationstar, which are included in Other Assets and Accrued Expenses and Other Liabilities, respectively.Income.
 
See Note 9 for a discussion of a transaction with OneMain and Note 4 regarding co-investments with Fortress-managed funds.


See Note 14 regarding options granted to the Manager.

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66
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share and per share data) 

17.    INCOME TAXES
16.RECLASSIFICATION FROM ACCUMULATED OTHER COMPREHENSIVE INCOME INTO NET INCOME
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 Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
    2017 2016 2017 2016
Reclassification of net realized (gain) loss on securities into earnings Gain (loss) on settlement of investments, net $(7,342) $679
 $(29,592) $(15,072)
Reclassification of net realized (gain) loss on securities into earnings Other-than-temporary impairment on securities 1,509
 1,765
 8,736
 7,838
Total reclassifications   $(5,833) $2,444
 $(20,856) $(7,234)

New Residential did not allocate any income tax expense or benefit to any component of other comprehensive income for any period presented, as no taxable subsidiary generated other comprehensive income.

17.INCOME TAXES
 
Income tax expense (benefit) consists of the following:
  Three Months Ended 
 September 30,
Nine Months Ended  
 September 30,
  2017
2016
2017
2016
Current:        
Federal $4,072
 $3,290
 $6,683
 $4,561
State and Local 131
 478
 354
 636
Total Current Income Tax Expense (Benefit) 4,203
 3,768
 7,037
 5,197
Deferred:        
Federal 20,977
 16,375
 97,053
 12,575
State and Local 7,433
 757
 16,963
 423
Total Deferred Income Tax Expense (Benefit) 28,410
 17,132
 114,016
 12,998
Total Income Tax Expense (Benefit) $32,613
 $20,900
 $121,053
 $18,195
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Current:
Federal$2,813 $— $6,932 $(7,877)
State and local1,415 1,438 2,283 1,496 
Total current income tax expense (benefit)4,228 1,438 9,215 (6,381)
Deferred:
Federal23,690 77,300 100,842 (29,921)
State and local3,641 22,074 18,684 (12,345)
Total deferred income tax expense (benefit)27,331 99,374 119,526 (42,266)
Total income tax expense (benefit)$31,559 $100,812 $128,741 $(48,647)
 
New Residential intends to qualify as a REIT for each of its tax years through December 31, 2017.2021. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.
 
New Residential operates various securitization vehiclesbusiness segments, including servicing, origination, and has made certainMSR related investments, particularly its investments in MSRs (Note 5), Servicer Advances (Note 6) and REO (Note 8), through taxable REIT subsidiaries (“TRSs”) that are subject to regular corporate income taxes, which have been provided for in the provision for income taxes, as applicable. Refer to Note 3 for further details.

As of September 30, 2021, New Residential and its subsidiaries file income tax returns with the U.S. federal government and various state and local jurisdictions beginning with the tax year ending December 31, 2013. Generally, these income tax returns will be subject to tax examinations by tax authorities for a period of three years after the date of filing.

New Residential has recorded a net deferred tax assetliability of approximately $32.4$407.6 million, as of September 30, 2017, primarily related to unrealized losses and net operating loss carry forwards.

In assessing the realizabilityincluding $280.0 million of deferred tax assets, management considers whether it is more likely than not that some portion or allliability recorded as part of the purchase price allocation related to the Caliber acquisition (Note 1). The deferred tax assets will not be realized. The ultimate realizationliability of $407.6 million is primarily composed of deferred tax assets is dependent uponliabilities generated through the generationdeferral of futuregains from loans sold by the origination business and changes in fair value of MSRs, loans, and swaps held within taxable income during the periods in which temporary differences become deductible. During the nine months ended September 30, 2017, New Residential recorded a partial valuation allowance related to certain net operating losses and loan loss reserves as management does not believe that it is more likely than not that these deferred tax assets will be realized.entities.


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NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES18.    SUBSEQUENT EVENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017
(dollars in tables in thousands, except share data) 

18.SUBSEQUENT EVENTS
 
These financial statements include a discussion of material events that have occurred subsequent to September 30, 2017 (referred to as “subsequent events”)2021 through the issuance of these condensed consolidated financial statements.Consolidated Financial Statements. Events subsequent to that date have not been considered in these financial statements.


Corporate ActivitiesSubsequent to September 30, 2021, New Residential announced that it had entered into a definitive agreement with affiliates of The Goldman Sachs Group, Inc. to acquire Genesis Capital LLC (“Genesis”), a leading business purpose lender that provides innovative solutions to developers of new construction, fix and flip and rental hold projects, and acquire a related portfolio of loans. The acquisition of Genesis is expected to close in the fourth quarter of 2021, subject to certain approvals and customary closing conditions.


On September 22, 2017, New Residential’s board of directors declared a third quarter 2017 dividend of $0.50 per common share or $153.7 million, which was paid on October 27, 2017 to stockholders of record as of October 2, 2017.





67

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of New Residential. The following should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto, included herein, and with Part II, Item 1A. “Risk Factors.”

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

As permitted by SEC Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, this section discusses our results of operations for the current quarter ended September 30, 2021 compared to the immediately preceding prior quarter ended June 30, 2021.
GENERAL
 
New Residential is a publicly traded REIT primarily focused on opportunistically investing in, and actively managing, investments related to the residential real estate.estate market. We seek to generate long-term value for our investors by using our investment expertise to identify, create and invest primarily target investments in mortgage servicing related assets, including operating companies, that offer attractive risk-adjusted returns. Our investment strategy also involves opportunistically pursuing acquisitions and related opportunistic investments. seeking to establish strategic partnerships that we believe enable us to maximize the value of the mortgage loans we originate and service by offering products and services to customers, servicers, and other parties through the lifecycle of transactions that affect each mortgage loan and underlying residential property. For more information about our investment guidelines, see “Item 1. Business — Investment Guidelines” of our annual report on Form 10-K for the year ended December 31, 2020.

As of September 30, 2021, we had $42 billion in total assets and 12,749 employees employed by our operating entities.

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

OUR MANAGER

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

STRATEGIC INVESTMENTS AND ACQUISITIONS

On April 14, 2021, we entered into a purchase agreement to acquire all of the assets and liabilities of Caliber through the acquisition of its outstanding common stock. On August 23, 2021, we completed the acquisition of all of the outstanding equity interests of Caliber from LSF Pickens Holdings, LLC for a purchase price of $1.318 billion in cash. Caliber is a leading mortgage originator and servicer. As a result of the acquisition, we expect to increase our scale and market position in the mortgage market.

Subsequent to September 30, 2021, we announced that we had entered into a definitive agreement with affiliates of The Goldman Sachs Group, Inc. (“Goldman Sachs”) to acquire Genesis, a leading business purpose lender that provides innovative solutions to developers of new construction, fix and flip and rental hold projects, and acquire a related portfolio of loans. Genesis adds a new complementary business line and adds business purpose lending to our suite of products. Furthermore, we believe the acquisition supports our growing single-family rental strategy that allows us to capture additional unmet demand from our Retail and Wholesale origination channels. We intend to finance the transaction with existing cash and committed asset-based financing from Goldman Sachs. The acquisition of Genesis is expected to close in the fourth quarter of 2021, subject to certain approvals and customary closing conditions.

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CAPITAL ACTIVITIES

On September 14, 2021, we priced our underwritten public offering of 17,000,000 of our 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, we granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for us, we granted options to the Management Agreement. Our goal isManager relating to drive strong risk-adjusted returns primarily throughapproximately 1.9 million shares of our investments, and our investment guidelines are purposefully broadcommon stock at $10.89 per share.

The Company intends to enable us to make investments in a wide array of assets in diverse markets, including non-real estate related assets such as consumer loans. We generally target assets that generate significant current cash flows and/or haveuse the potentialnet proceeds from the offering for meaningful capital appreciation.general corporate purposes.

Our portfolio is currently composed of mortgage servicing related assets, Non-Agency RMBS (and associated call rights), residential mortgage loans and other opportunistic investments. Our asset allocation and target assets may change over time, depending on our investment decisions in light of prevailing market conditions. The assets in our portfolio are described in more detail below under “—Our Portfolio.”


MARKET CONSIDERATIONS

Developments inIncoming economic data and indicators regarding the overall financial health and condition of the U.S. Housing Market

In response to the changing landscape of the mortgage industry and bank capital requirements, banks have sold or committed to sell MSRs totaling more than $3.5 trillion since 2010. As of the second quarter of 2017, the top 100 mortgage servicers serviced over $8.0 trillion of mortgages, according to Inside Mortgage Finance. Of the $10.0 trillion one-to-four family mortgage debt outstanding, approximately 70% was serviced by banks as of the second quarter of 2017, according to Inside Mortgage Finance. We expect this number to continue to decline as banks face pressure to reduce their MSR exposure as a result of heightened capital reserve requirements under Basel III, regulatory scrutiny and a challenging servicing environment, among other reasons. As a result, we believe an elevated volume of MSR sales is likely for some period of time. In addition, we believe that non-bank servicers who are constrained by capital limitations will continue to sell MSRs, Excess MSRs and other servicing assets. These factors have resulted in increased opportunities for us to acquire MSRs and to provide capital to non-bank servicers. In addition, approximately $1.7 trillion of new loans are expected to be originated in 2017, according to the Mortgage Bankers Association. We believe this creates an opportunity to enter into “flow arrangements,” whereby loan originators or servicers agree to sell MSRs or Excess MSRs on newly originated loans on a recurring basis (often monthly or quarterly). While increased competition and market conditions for more recently originated MSRs have driven prices higher recently, thereby also increasing the value of the MSRs in which we have invested, we believe MSRs continue to offer attractive returns.

There can be no assurance that we will make additional investments in MSRs or Excess MSRs or that any future investment in MSRs or Excess MSRs will generate returns similar to the returns on our original investments in MSRs or Excess MSRs. The timing, size and potential returns of our future investments in MSRs and Excess MSRs may be less attractive than our prior investments in this sector due toa number of factors, most of which are beyond our control. Such factors include, but are not limited to, changes in interest rates and recent increased competition for more recently originated MSRs. In addition, the acquisition of Agency MSRs requires GSE and, in certain cases, other regulatory approval. The process to obtain such approvals is extensive and will extend transaction settlement times when compared to our experience with the acquisition of Excess MSRs. In general, regulatory and GSE approval processes have been more extensive and taken longer than the processes and timelines we experienced in prior periods, which has increased the amount of time and effort required to complete transactions.

Interest Rates and Prepayment Rates

As further described in Item 3. “Quantitative and Qualitative Disclosures About Market Risk,” increasing interest rates are generally associated with declining prepayment rates for residential mortgage loans since they increase the cost of borrowing for homeowners. Declining prepayment rates, in turn, would generally be expected to increase the value of our interests in Excess MSRs, MSRs and Servicer Advance Investments, which include the right to a portion of the related MSRs, because the duration of the cash flows we are entitled to receive becomes extended with no reduction in current cash flows. Changes in interest rates will also directly impact our costs of borrowing either immediately (floating rate debt) or upon refinancing (fixed rate debt) and may also


be associated with changes in credit spreads and/or the discount rates used in valuing investments. Declining prepayment rates have a negative impact on the value of investments purchased at a significant discount since the recovery of that discount is delayed.

In the third quarter of 2017, both current interest rates and expected future interest rates generally increased slightly. For instance,2021 were somewhat mixed. On balance, the 10-year treasury yield increased from 2.30% to 2.33%. With respect to our Non-Agency RMBS, which were generally purchased at a significant discount, while market interest rates increased, market credit spreads for these investments decreased, with the net result being an increase in valuebroader financial markets remained relatively unchanged during the quarter.

The value of our MSRs and Excess MSRs is subject to a variety of factors, as described in Item 3. “Quantitative and Qualitative Disclosures About Market Risk” and in Part II, Item 1A. “Risk Factors.” In the third quarter of 2017,despite inflation concerns and potential headwinds over the fair value of our direct investments in Excess MSRs and our sharespread of the fair value of the Excess MSRs held through equity method investees decreased by approximately $16.4 million in the aggregate, primarily as a result of an increase in actual and projected prepayment ratesmore-contagious, more-vaccine-resistant COVID-19 “Delta” variant. The U.S. real gross domestic product (“GDP”) increased during the quarter, whilealbeit at a slower rate compared to the weighted average discountfirst half of 2021. Labor market conditions continued to improve with the total unemployment rate stepping down notably to 4.8% at September 30, 2021 from 5.9% at June 30, 2021. The consumer price inflation—as measured by the 12-month percentage change in the personal consumption expenditures (“PCE”) price index—remained elevated and well above the Federal Reserve’s longer-term goal of 2.0%, largely driven by supply constraints and bottlenecks.

Consumer spending slowed in the third quarter after expanding markedly in the first half of 2021. The spread of the portfolioDelta variant in conjunction with lower inventories and higher prices due to supply constraints tempered consumer spending on goods and services across the board.

Housing demand remained unchanged at 9.7%. In addition, a decrease in discount rates, as well as contractual changes resulting from the Ocwen Transaction, partially offset by a decrease in interest rates, caused the fair value of our MSRs, including MSR financing receivables, to increase by approximately $77.6 millionstrong during the period.

Changesquarter despite shortages in interest rates did not have a meaningful impact onmaterials, with construction of single-family homes and home sales remaining above pre-pandemic levels, and house prices rising further. In the net interest spread of our Agency and Non-Agency RMBS portfolios. Our RMBS are primarily floating rate or hybrid (i.e., fixed to floating rate) securities, which we generally finance with floating rate debt, or are economically hedged with respect to interest rates. Therefore, while rising interest rates will generally result in a higher cost ofresidential mortgage market, financing they will also result in a higher coupon payable on the securities. The net interest spread on our Agency RMBS portfolio as of September 30, 2017 was 1.61%, compared to 1.84% as of June 30, 2017. The spread changed primarily as a result of increased funding costs and lower yields from new securities purchasedconditions during the third quarter of 2017.2021 remained accommodative for credit-worthy borrowers who met standard conforming loan criteria. Mortgage rates increased slightly during the quarter but remained very low by historical standards. Credit availability continued to improve, especially for jumbo loans and lower-score FHA borrowers. Mortgage originations for home-purchases and refinancing were solid throughout the quarter. The netshare of mortgages in forbearance declined further. While loan originations benefited from low interest rates, including the recent elimination of the 0.5% mortgage refinancing pandemic fee imposed by Fannie Mae and Freddie Mac, gain on sale margins continued to tighten, driven by the Federal Reserve’s talk of increasing interest rates and potential tapering of mortgage bond purchases, as well as increased competition among loan originators seeking to capture volume and market share from a shrinking pool of eligible borrowers.

The U.S. economic outlook for the remainder of the year continues to be uncertain and still largely dependent on the course of COVID-19. While the FDA’s first fully approved COVID-19 vaccine in late August 2021 aided in slowing the spread of COVID-19, the overall number of infections remained elevated, which in turn is expected to exert a larger amount of restraint on consumer spending, hiring, and labor supply than previously anticipated earlier in the year. Real GDP is expected to rise more slowly but at a still-solid pace, supported by the continued reopening of the economy and potential easing of supply chain disruptions.

The market conditions discussed above influence our Non-Agency RMBS portfolioinvestment strategy and results, many of which have been significantly impacted since mid-March 2020 by the ongoing COVID-19 pandemic.

The following table summarizes the U.S. gross domestic product estimates annualized rate by quarter:
Three Months Ended
September 30,
2021		June 30,
2021		March 31,
2021		December 31, 2020September 30, 2020
Real GDP2.0 %6.7 %6.3 %4.3 %33.4 %

The following table summarizes the U.S. unemployment rate according to the U.S. Department of Labor:
69

September 30,
2021		June 30,
2021		March 31,
2021		December 31, 2020September 30,
2020
Unemployment rate4.8 %5.9 %6.0 %6.7 %7.9 %

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:
September 30,
2021		June 30,
2021		March 31,
2021		December 31,
2020		September 30,
2020
10-year U.S. Treasury rate1.6 %1.5 %1.7 %0.9 %0.7 %
30-year fixed mortgage rate2.9 %3.0 %3.1 %2.7 %2.9 %

We believe the estimates and assumptions underlying our Consolidated Financial Statements are reasonable and supportable based on the information available as of September 30, 2017 was 3.01%, compared to 3.15%2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of JuneSeptember 30, 2017. This spread changed primarily as a result2021 inherently less certain than they would be absent the current and potential impacts of increased funding costsCOVID-19. Actual results may materially differ from those estimates. The COVID-19 pandemic and lower yields from new securities purchased duringits impact on the third quartercurrent financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of 2017.operations, liquidity and ability to pay distributions.


General U.S. Economy and UnemploymentUPCOMING CHANGES TO LIBOR


During the third quarter of 2017, the U.S. unemployment rate generally declined and equity market prices increased, signaling a general improvementThe London Interbank Offered Rate (“LIBOR”) is used extensively in the U.S. economy. In our view, an improvement in the economy suchand globally as this generally improves the value of housinga “benchmark” or “reference rate” for various commercial and the ability of borrowers to make payments on theirfinancial contracts, including corporate and municipal bonds and loans, thereby decreasing delinquencies and defaults on residential mortgage loans,floating rate mortgages, asset-backed securities, consumer loans, and RMBS. This relationship held true,interest rate swaps and other derivatives. It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. In addition, on March 5, 2021, the ICE Benchmark Administration confirmed its intention to ease publication of (i) one week and two-month USD LIBOR settings after December 31, 2021 and (ii) the remaining USD LIBOR settings after June 30, 2023. The U.S. and other countries are currently working to replace LIBOR with alternative reference rates. In the U.S., the Alternative Reference Rates Committee (“ARRC”), has identified the Secured Overnight Financing Rate (“SOFR”), as expected, as the Case Shiller Home Price Index increased from 190 asits preferred alternative rate for U.S. dollar-based LIBOR. SOFR is a measure of the second quartercost of 2016 to 200 as of June of 2017. In addition, according to CoreLogic, the total number of mortgaged residential properties with negative equity stood at 2.8 million, or 5.4 percent, as of the second quarter of 2017, down from 3.6 million, or 7.1 percent, as of the second quarter of 2016. This trend helped to support the values of our residential mortgage loans, consumer loans and RMBS.

Credit Spreads

Corporate credit spreads generally tightened during the third quarter of 2017, which would generally have a favorable impact on the value of yield driven financial instruments, such as our RMBS and loan portfolios. Corporate credit spreads, while a useful market proxy, are not necessarily indicative or directly correlated to mortgage credit spreads. Collateral performance, market liquidity and other factors related specifically to certain investments within our mortgageborrowing cash overnight, collateralized by U.S. Treasury securities, and loan portfolio coupled withis based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants may continue to explore whether other U.S. dollar-based reference rates would be more appropriate for certain types of instruments. The ARRC has proposed a paced market transition plan to SOFR, and various organizations are currently working on industry wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the corporate credit spread tightening during the third quarter of 2017 caused the value of the portion of this portfolio that was ownedrelated risks and our exposure.

In preparation for the entire quarter to increase.

For more information regarding thesephase-out of LIBOR, we adopted and other market factors which impactimplemented the SOFR index for our portfolio, see Item 3. “QuantitativeFreddie Mac and Qualitative Disclosures About Market Risk.”

Our Manager

On February 14, 2017, Fortress announced that it had entered into the Merger Agreement with SB Foundation Holdings LP, a Cayman Islands exempted limited partnershipFannie Mae adjustable-rate mortgages (“SoftBank Parent”ARMs”) and an affiliate of SoftBank, and Foundation Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (“SoftBank Merger Sub”), pursuant to which SoftBank Merger Sub will merge with and into Fortress, with Fortress surviving as a wholly owned subsidiary of SoftBank Parent. While Fortress’s senior investment professionals are expected to remain in place, including those individuals who perform services for us, there can be no assurancenon-QM loans. For debt facilities that the SoftBank merger willdo not have an impact on us or our relationship with the Manager.



Fortress informed the Company that it believes that under the Investment Advisers Act of 1940, as amended, the change of ownership resulting from the completion of the SoftBank merger will result in a deemed assignment of the Management Agreement, and that as a result, the Manager is required to obtain the Company’s consentmature prior to the assignment. On April 19, 2017,phase-out of LIBOR, we have implemented amending terms to transition to an alternative benchmark. We continue to evaluate the disinterested members of our board of directors unanimously approved the consenttransitional impact to the assignment. The disinterested members of our board of directors were advised by outside independent counsel.serviced ARMs.


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OUR PORTFOLIO

Our portfolio, is currently composedas of mortgageSeptember 30, 2021, consists of servicing related assets,and origination, including our subsidiary operating entities, residential securities and loans and other investments, as described in more detail below. The assets in our portfolio are described in more detail below (dollars in thousands).
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related InvestmentsTotal Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
September 30, 2021
Investments$11,714,006 $4,848,688 $3,017,963 $19,580,657 $9,973,795 $2,958,434 $547,795 $— $33,060,681 
Cash and cash equivalents768,301 102,825 321,924 1,193,050 171,532 53 1,778 265 1,366,678 
Restricted cash35,284 87,969 29,525 152,778 15,704 1,457 24,806 — 194,745 
Other assets1,484,399 2,582,560 2,072,971 6,139,930 368,724 131,996 38,987 272,906 6,952,543 
Goodwill11,836 12,540 5,092 29,468 — — — — 29,468 
Total assets$14,013,826 $7,634,582 $5,447,475 $27,095,883 $10,529,755 $3,091,940 $613,366 $273,171 $41,604,115 
Debt$11,390,069 $3,201,575 $3,779,105 $18,370,749 $9,663,568 $2,392,505 $499,669 $624,435 $31,550,926 
Other liabilities583,220 2,389,688 108,326 3,081,234 (6,108)182,653 746 167,551 3,426,076 
Total liabilities11,973,289 5,591,263 3,887,431 21,451,983 9,657,460 2,575,158 500,415 791,986 34,977,002 
Total equity2,040,537 2,043,319 1,560,044 5,643,900 872,295 516,782 112,951 (518,815)6,627,113 
Noncontrolling interests in equity of consolidated subsidiaries16,134 — 13,283 29,417 — — 41,606 — 71,023 
Total New Residential stockholders’ equity$2,024,403 $2,043,319 $1,546,761 $5,614,483 $872,295 $516,782 $71,345 $(518,815)$6,556,090 
Investments in equity method investees$— $— $103,956 $103,956 $— $— $— $— $103,956 

Operating Investments

Origination

For the three months ended September 30, 2021, loan origination volume was $34.5 billion, up from $23.5 billion in the quarter prior. Funded volumes by channel represented roughly 19%, 16%, 13% and 52% of total volume for Direct to Consumer, Retail / Joint Venture, Wholesale and Correspondent, respectively, as compared to 27%, 4%, 10% and 58% for the three months ended June 30, 2021. The increase in funded volumes quarter over quarter was primarily driven by the addition of the Caliber origination platform following the close of the Caliber acquisition in August 2021. Pull-through adjusted lock volume was $31.7 billion, compared to $20.5 billion in the prior quarter. During the three months ended September 30, 2021, refinance activity represented 52% of overall funded volumes and purchase activity represented 48% of overall funded volumes. This compared to 64% for refinance and 36% for purchase, respectively, in the prior quarter. Caliber represented approximately 15% and 11% of total purchase and refinance activity, respectively, for the third quarter. Purchase activity for the broader industry is expected to continue to increase. Gain on sale margin for the three months ended September 30, 2021 was 1.61%, 30 bps higher than the 1.31% for the prior quarter primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. While increased competition and capacity have driven gain on sale margins from their highs in 2020, we expect margins to stabilize, especially in third-party originated channels, as industry capacity adjusts to demand.

Included in our Origination segment are the financial results of two affiliated businesses, E Street Appraisal Management LLC (“E Street”) and Avenue 365 Lender Services, LLC (“Avenue 365”). E Street offers appraisal valuation services and Avenue 365 provides title insurance and settlement services to Newrez and Caliber.

71

The following table provides loan production by channel and product:
Unpaid Principal Balance
Three Months EndedNine Months Ended
(in millions)September 30, 2021% of TotalJune 30, 2021% of TotalSeptember 30, 2021% of TotalSeptember 30, 2020% of TotalQoQ ChangeYoY Change
Production by Channel
  Direct to Consumer$6,425 19 %$6,404 27 %$18,502 22 %$8,571 23 %$21 $9,931 
  Retail / Joint Venture5,556 16 %1,007 4 %7,613 9 %2,789 7 %4,549 4,824 
  Wholesale4,476 13 %2,413 10 %9,561 11 %4,893 13 %2,063 4,668 
  Correspondent18,017 52 %13,656 58 %49,491 58 %21,494 57 %4,361 27,997 
Total Production by Channel$34,474 100 %$23,480 100 %$85,167 100 %$37,747 100 %$10,994 $47,420 
Production by Product
  Agency$24,709 72 %$17,649 75 %$61,942 73 %$24,316 64 %$7,060 $37,626 
  Government8,872 26 %5,632 24 %21,978 26 %12,709 34 %3,240 9,269 
  Non-QM184 1 %63 — %247 — %365 1 %121 (118)
  Non-Agency602 2 %120 1 %860 1 %294 1 %482 566 
  Other107 — %16 — %140 — %63 — %91 77 
Total Production by Product$34,474 100 %$23,480 100 %$85,167 100 %$37,747 100 %$10,994 $47,420 
% Purchase48 %36 %38 %30 %
% Refinance52 %64 %62 %70 %

The following table provides information regarding Gain on Originated Mortgage Loans, Held-for-Sale, Net:
Three Months EndedNine Months Ended
(dollars in thousands)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Gain on originated mortgage loans, held-for-sale, net(A)(B)(C)(D)
$510,740$268,539 $1,163,702$885,730 $242,201 $277,972 
Pull through adjusted lock volume$31,731,617$20,497,057$79,135,350$44,044,241 $11,234,560 $35,091,109 
Gain on originated mortgage loans, as a percentage of pull through adjusted lock volume, by channel:
Direct to Consumer3.99 %3.83 %4.02 %4.44 %
Retail / Joint Venture3.80 %4.81 %4.02 %3.70 %
Wholesale1.04 %0.95 %1.21 %2.29 %
Correspondent0.32 %0.25 %0.30 %0.66 %
Total gain on originated mortgage loans, as a percentage of pull through adjusted lock volume1.61 %1.31 %1.47 %2.01 %
(A)Includes realized gains on loan sales and related new MSR capitalization, changes in repurchase reserves, changes in fair value of IRLCs, changes in fair value of loans held for sale and economic hedging gains and losses.
(B)Includes loan origination fees of $678.4 million and $438.9 million for the three months ended September 30, 2021 and June 30, 2021, respectively. Includes loan origination fees of $1,775.7 million and $953.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(C)Excludes $56.0 million and $18.3 million of Gain on Originated Mortgage Loans, Held-for-Sale, Net for the three months ended September 30, 2021 and June 30, 2021, respectively, related to the MSR Related Investments, Servicing, and Residential Mortgage Loans segments, as well as intercompany eliminations (Note 8 to the Consolidated Financial Statements). Excludes $93.4 million and $81.1 million of Gain on Originated Mortgage Loans, Held-for-Sale, Net for the nine months ended September 30, 2021 and 2020, respectively.
(D)Excludes mortgage servicing rights revenue on recaptured loan volume delivered back to NRM.

Total Gain on Originated Mortgage Loans, Held-for-Sale, Net increased for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. Total Gain on Originated Mortgage
72

Loans, Held-for-Sale, Net increased for the nine months ended September 30, 2021 compared to the same period in 2020 primarily driven by the higher volume from all our channels.

Servicing

Our servicing business operates through our performing loan servicing division and a special servicing division, Shellpoint Mortgage Servicing (“SMS”). The performing loan servicing division services performing Agency and government-insured loans. SMS services delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying mortgage loans. During the third quarter, as part of the Caliber acquisition, we assumed Caliber’s servicing portfolio, including $156 billion of UPB of performing servicing. As of September 30, 2021, the performing loan servicing division (Newrez and Caliber) serviced $378.8 billion UPB of loans and Shellpoint Mortgage Servicing serviced $97.0 billion UPB of loans, for a total servicing portfolio of $475.8 billion UPB, representing a 56% increase from June 30, 2021. Active forbearances within this portfolio continued to decline in the second quarter 2021 as our servicer continued to help homeowners and clients navigate the COVID-19 landscape. Only 1.94% of this portfolio was in active forbearance as of September 30, 2017.2021, down from 2.46% in the quarter prior, with minimal additions in new forbearance requests during the quarter. Our servicer has continued to leverage proprietary loss mitigation technology to help homeowners move into permanent solutions such as repayment plans, deferments, and loan modifications.


The table below provides the mix of our serviced assets portfolio between subserviced performing servicing on behalf of New Residential or its subsidiaries (labeled as “Performing Servicing”) and subserviced non-performing, or special servicing (labeled as “Special Servicing”) for third parties and delinquent loans subserviced for other New Residential subsidiaries for the periods presented.
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Outstanding
Face Amount
 
Amortized
Cost Basis
 Percentage of Total Amortized Cost Basis 
Carrying
Value
 
Weighted
Average
Life (years)(A)
Investments in:         
Excess MSRs(B)
$281,848,962
 $1,193,420
 6.9% $1,353,941
 6.1
MSRs(B) (C)
177,285,425
 1,521,605
 8.8% 1,702,749
 6.4
Mortgage Servicing Rights Financing Receivable(B) (C)
67,052,949
 511,558
 3.0% 607,396
 5.6
Servicer Advance Investments(B) (D)
3,651,705
 3,955,375
 23.0% 4,044,802
 5.1
Agency RMBS(E)
1,123,553
 1,195,281
 6.9% 1,190,656
 7.6
Non-Agency RMBS(E)
11,906,608
 5,136,883
 29.7% 5,524,190
 7.7
Residential Mortgage Loans2,440,281
 2,164,212
 12.5% 2,128,978
 4.6
Real Estate OwnedN/A
 117,413
 0.7% 107,281
 N/A
Consumer Loans1,472,973
 1,473,534
 8.5% 1,467,933
 3.5
Consumer Loans, Equity Method Investees231,839
 N/A
 N/A
 46,322
 1.4
Total/Weighted Average  $17,269,281
 100.0% $18,174,248
 6.0
          
Reconciliation to GAAP total assets:         
Cash and restricted cash      431,807
  
Servicer advances receivable      657,255
  
Trades receivable      1,785,708
  
Deferred tax asset, net      32,440
  
Other assets      323,375
  
GAAP total assets      $21,404,833
  
Unpaid Principal Balance
(in millions)September 30, 2021June 30, 2021September 30, 2020QoQ ChangeYoY Change
Performing Servicing
MSR Assets$368,716 $207,881 $185,273 $160,835 $183,443 
Residential Whole Loans9,119 6,301 2,975 2,818 6,144 
Third Party954 — — 954 954 
Total Performing Servicing378,789 214,182 188,248 164,607 190,541 
Special Servicing
MSR Assets16,450 13,866 14,566 2,584 1,884 
Residential Whole Loans5,779 1,450 7,258 4,329 (1,479)
Third Party74,814 76,409 77,131 (1,595)(2,317)
Total Special Servicing97,043 91,725 98,955 5,318 (1,912)
Total Servicing Portfolio$475,832 $305,907 $287,203 $169,925 $188,629 
Agency Servicing
MSR Assets$269,830 $157,848 $143,555 $111,982 $126,275 
Residential Whole Loans— — — — — 
Third Party12,319 13,155 19,216 (836)(6,897)
Total Agency Servicing282,149 171,003 162,771 111,146 119,378 
Government-insured Servicing
MSR Assets105,976 58,604 55,894 47,372 50,082 
Residential Whole Loans— — — — — 
Third Party— — 1,342 — (1,342)
Total Government Servicing105,976 58,604 57,236 47,372 48,740 
Non-Agency (Private Label) Servicing
MSR Assets9,360 5,295 390 4,065 8,970 
Residential Whole Loans14,898 7,751 10,233 7,147 4,665 
Third Party63,449 63,254 56,573 195 6,876 
Total Non-Agency (Private Label) Servicing87,707 76,300 67,196 11,407 20,511 
Total Servicing Portfolio$475,832 $305,907 $287,203 $169,925 $188,629 
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(A)Weighted average life is based on the timing of expected principal reduction on the asset.
(B)The outstanding face amount of Excess MSRs, MSRs, Mortgage Servicing Rights Financing Receivable, and Servicer Advance Investments is based on 100% of the face amount of the underlying residential mortgage loans and currently outstanding advances, as applicable.
(C)Represents MSRs where our subsidiary, NRM, is the named servicer.
(D)The value of our Servicer Advance Investments also includes the rights to a portion of the related MSR.
(E)Amortized cost basis is net of impairment.



Three Months EndedNine Months Ended
(in thousands)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Base Servicing Fees
MSR Assets$174,220 $143,999 $477,020 $258,311 $30,221 $218,709 
Residential Whole Loans11,281 1,163 13,518 10,938 10,118 2,580 
Third Party24,245 25,408 77,051 83,468 (1,163)(6,417)
Total Base Servicing Fees$209,746 $170,570 $567,589 $352,717 $39,176 $214,872 
Other Fees
Incentive fees$23,698 $20,349 $64,296 $29,565 $3,349 $34,731 
Ancillary fees14,822 11,519 37,330 30,623 3,303 6,707 
Boarding fees2,425 2,510 6,872 8,580 (85)(1,708)
Other fees6,829 7,516 20,056 11,475 (687)8,581 
Total Other Fees(A)
$47,774 $41,894 $128,554 $80,243 $5,880 $48,311 
Total Servicing Fees$257,520 $212,464 $696,143 $432,960 $45,056 $263,183 

(A)Includes other fees earned from third parties of $14.9 million and $15.4 million for the three months ended September 30, 2021 and June 30, 2021, respectively, and $46.6 million and $55.1 million for the nine months ended September 30, 2021 and 2020, respectively.
Servicing
MSR Related AssetsInvestments


MSRs and Mortgage Servicing RightsMSR Financing ReceivableReceivables


As of September 30, 2017,2021, we had $2.3$6.6 billion carrying value of MSRs and mortgage servicing rightsMSR Financing Receivables. As of September 30, 2021, our Full and Excess MSR portfolio increased to $635 billion UPB from $536 billion UPB as of December 31, 2020. Full MSRs as of September 30, 2021 increased to $550 billion from $435 billion UPB as of December 31, 2020. Excess MSRs as of September 30, 2021 decreased to $85 billion UPB from $101 billion as of December 31, 2020. The increase in portfolio size during the periods presented was predominantly a result of the Caliber acquisition and MSRs retained from originations offset by prepayments.

We finance our MSRs and MSR financing receivable withinreceivables with short- and medium-term bank and public capital markets notes. These borrowings are primarily recourse debt and bear both fixed and variable interest rates offered by the counterparty for the term of the notes of a specified margin over LIBOR. The capital markets notes are typically issued with a collateral coverage percentage, which is a quotient expressed as a percentage equal to the aggregate note amount divided by the market value of the underlying collateral. The market value of the underlying collateral is generally updated on a quarterly basis and if the collateral coverage percentage becomes greater than or equal to a collateral trigger, generally 90%, we may be required to add funds, pay down principal on the notes, or add additional collateral to bring the collateral coverage percentage below 90%. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.”

See Note 11 to our licensed servicer subsidiary, NRM, primarily Agency MSRs.Consolidated Financial Statements for further information regarding financing of our MSRs and MSR Financing Receivables.


NRM hasWe have contracted with certain subservicers and, in relation to certain MSR purchases, interim subservicers, to perform the related servicing duties on the residential mortgage loans underlying itsour MSRs. As of September 30, 2017,2021, these subservicers include Ditech, Nationstar, PHH, Citi, Ocwen,Mr. Cooper, LoanCare, and Flagstar, and United Shore, which subservice 29.1%10.8%, 27.6%9.9%, 21.2%, 13.8%, 6.4%, 1.1%,8.9% and 0.8%0.4% of the underlying UPB of the related mortgages, respectively (includes both Mortgage Servicing RightsMSRs and Mortgage Servicing RightsMSR Financing Receivable). NRM has entered into agreements with Ditech, Nationstar,Receivables).The remaining 70.0% of the underlying UPB of the related mortgages is subserviced by Newrez and PHH whereby it is entitledCaliber (Note 1 to our Consolidated Financial Statements).

We are generally obligated to fund all future servicer advances related to the underlying pools of mortgage loans on our MSRs and MSR Financing Receivables. Generally, we will advance funds when the borrower fails to meet, including forbearances, contractual payments (e.g. principal, interest, property taxes, insurance). We will also advance funds to maintain and report foreclosed real estate properties on behalf of investors. Advances are recovered through claims to the related investor and subservicers. Pursuant to our servicing agreements, we are obligated to make certain advances on mortgage loans to be in
75

compliance with applicable requirements. In certain instances, the subservicer is required to reimburse us for any refinancingadvances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract.

We finance our servicer advances with short- and medium-term collateralized borrowings. These borrowings are non-recourse committed facilities that are not subject to margin calls and bear both fixed and variable interest rates offered by such subservicerthe counterparty for the term of the notes, generally less than one year, of a loan in the related original portfolio.

In July 2017, we entered into the Ocwen Transaction as described inspecified margin over LIBOR. See Note 511 to our condensed consolidated financial statements.Consolidated Financial Statements for further information regarding financing of our servicer advances.


See Note 5 to our condensed consolidated financial statementsConsolidated Financial Statements for further information regarding our investments in mortgage servicing rights financing receivable.MSR Financing Receivables.


The table below summarizes the terms of our investments in MSRs and mortgage servicing rights financing receivable completedMSR Financing Receivables as of September 30, 2017.2021.
(dollars in millions)Current UPBWeighted Average MSR (bps)Carrying Value
GSE$374,945.6 28 bps$4,273.4 
Non-Agency68,903.6 48 966.1 
Ginnie Mae105,975.4 39 1,325.8 
Total$549,824.6 33 bps$6,565.3 
 Current UPB (bn) Weighted Average MSR (bps)  Carrying Value (mm)
Mortgage Servicing Rights      
Agency$177.2
 27
bps $1,702.7
Non-Agency0.1
 50
  —
Mortgage Servicing Rights Financing Receivable

 

  

Agency51.5
 27
  473.7
Non-Agency15.5
 33
  133.7
Total/Weighted Average$244.3
 27
bps
$2,310.1


The following table summarizes the collateral characteristics of the loans underlying our investments in MSRs and mortgage servicing rights financing receivableMSR Financing Receivables as of September 30, 20172021 (dollars in thousands):
Collateral Characteristics
Current Carrying AmountCurrent Principal BalanceNumber of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
GSE$4,273,376 $374,945,577 2,156,647 754 3.7 %279 51 1.8 %23.0 %22.9 %0.1 %19.4 %
Non-Agency966,051 68,903,562 575,219 639 4.3 %293 180 10.9 %13.3 %12.0 %1.5 %4.0 %
Ginnie Mae1,325,840 105,975,422 492,986 698 3.3 %333 24 0.9 %23.0 %22.8 %0.1 %22.3 %
Total$6,565,267 $549,824,561 3,224,852 729 3.7 %291 62 2.7 %21.8 %21.5 %0.3 %18.1 %
 Collateral Characteristics
 Current Carrying Amount Current Principal Balance Number of Loans 
WA FICO Score(A)
 WA Coupon WA Maturity (months) Average Loan Age (months) 
Adjustable Rate Mortgage %(B)
 
Three Month Average CPR(C)
 
Three Month Average CRR(D)
 
Three Month Average CDR(E)
 Three Month Average Recapture Rate
Mortgage Servicing Rights                       
Agency$1,702,749
 $177,220,692
 1,268,758
 743
 4.3% 258
 67
 3.3% 13.5% 13.3% 0.1% 11.5%
Non-Agency—
 64,733
 919
 626
 7.2% 197
 174
 44.1% 11.8% 1.7% 10.3% —%
Mortgage Servicing Rights Financing Receivable

 

 
 

 

 

 

 

 

 

 

 

Agency473,669
 51,533,451
 376,971
 744
 4.2% 248
 71
 7.7% 13.0% 12.5% 0.4% 3.5%
Non-Agency133,727
 15,519,498
 111,358
 657
 5.1% 267
 140
 21.3% 4.9% 3.8% 1.1% —%
Total/Weighted Average$2,310,145
 $244,338,374
 1,758,006
 738
 4.4% 256
 73
 5.4% 12.8% 12.5% 0.2% 9.1%


Collateral Characteristics
Delinquency 30 Days(F)
Delinquency 60 Days(F)
Delinquency 90+ Days(F)
Loans in ForeclosureReal Estate OwnedLoans in Bankruptcy
GSE0.8 %0.2 %1.9 %0.3 %— %0.2 %
Non-Agency6.5 %2.0 %5.1 %5.5 %0.9 %2.3 %
Ginnie Mae2.2 %0.7 %3.2 %0.3 %— %0.4 %
Total1.8 %0.5 %2.5 %0.9 %0.1 %0.5 %

(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.

76
 Collateral Characteristics
 
Delinquency 30 Days(F)
 
Delinquency 60 Days(F)
 
Delinquency 90+ Days(F)
 Loans in Foreclosure Real Estate Owned Loans in Bankruptcy
Mortgage Servicing Rights           
Agency1.7% 0.4% 0.6% 0.2% —% 0.2%
Non-Agency7.9% 3.2% 2.7% 19.8% —% 3.2%
Mortgage Servicing Rights Financing Receivable

 

 
 

 

 

Agency1.8% 0.3% 0.5% 0.5% —% 0.4%
Non-Agency7.4% 4.1% 6.5% 3.5% 2.1% 2.9%
Total/Weighted Average2.1% 0.6% 1.0% 0.5% 0.2% 0.4%


(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.

Excess MSRs
 
As of September 30, 2017, we had approximately $1.4 billion estimated carrying value of Excess MSRs (held directly and through joint ventures). As of September 30, 2017, our completed investments represent an effective 32.5%-100% interest in the Excess MSRs (held either directly or through joint ventures) on pools of residential mortgage loans with an aggregate UPB of approximately $281.8 billion. In our capacity as owner of the Excess MSRs, we do not have any servicing duties, liabilities or obligations associated with the servicing of the portfolios underlying any of our Excess MSRs. However, we, in certain cases through co-investments made by our subsidiaries, may separately agree to do so and have separately purchased Servicer Advance Investments, including the right to receive the basic fee component of related MSRs, on the Non-Agency portfolios underlying our Excess MSR investments. See “—Servicer Advance Investments” below.

Nationstar is the servicer of $188.0 billion UPB of the loans underlying our investments in Excess MSRs through September 30, 2017, and our servicers earn a basic fee in exchange for providing all servicing functions. In addition, when Nationstar sells Excess MSRs to us, it generally retains a 20.0% to 35.0% interest in the Excess MSRs and all ancillary income associated with the portfolios.
In December 2014, we agreed to acquire 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 continues to service the loans in exchange for a servicing fee of 10.75 bps times the UPB of the underlying loans 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.

On April 6, 2015, we acquired Excess MSRs in connection with the HLSS Acquisition. Ocwen continues to service the underlying loans in exchange for a servicing fee of 12% times the servicing fee collections of the underlying loans, which as of September 30, 2017 is equal to 6.0 bps times the UPB of the underlying loans, and an incentive fee which is 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, we entered into the Ocwen Transaction as described in Note 5 to our condensed consolidated financial statements.

Each of our Excess MSR investments serviced by Nationstar and SLS is subject to a recapture agreement with Nationstar. Under such recapture agreements, we are generally entitled to a pro rata interest in the Excess MSRs on any initial or subsequent refinancing by Nationstar of a loan in the original portfolio. In other words, we are generally entitled to a pro rata interest in the Excess MSRs on both (i) a loan resulting from a refinancing by Nationstar of a loan in the original portfolio, and (ii) a loan resulting from a


refinancing by Nationstar of a previously recaptured loan. We have a similar recapture agreement with Ocwen; however, this agreement allows for Ocwen to retain the Excess MSR on recaptured loans up to a specified threshold and no payments have been made to us under such arrangement to date.

The tables below summarize the terms of our investments in Excess MSRs completed as of September 30, 2017.MSRs:


Summary of Direct Excess MSR InvestmentsMSRs as of September 30, 20172021
MSR Component(A)
Excess MSR
Current UPB
(billions)		Weighted Average MSR (bps)Weighted Average Excess MSR (bps)Interest in Excess MSR (%)Carrying Value (millions)
Agency$28.4 29 bps21 bps32.5% - 66.7%$139.3 
Non-Agency(B)
32.2 35 15 33.3% - 100%130.9 
Total/Weighted Average$60.6 32 bps18 bps$270.2 



MSR Component(A)



Excess MSR

Current UPB
(bn)
Weighted Average MSR (bps)
Weighted Average Excess MSR (bps)
Interest in Excess MSR (%)
Carrying Value (mm)
Agency         
Original and Recaptured Pools$68.4
 28
bps21
bps32.5% - 66.7% $288.3
Recapture Agreements—
 29
 21
 32.5% - 66.7% 45.5

68.4
 28

21


 333.8
Non-Agency(B)
         
Nationstar and SLS Serviced:         
Original and Recaptured Pools$67.5
 35
 15
 33.3% - 100.0% $191.3
Recapture Agreements—
 26
 20
 33.3% - 100.0% 19.6
Ocwen Serviced Pools92.3
 46
 14
 100.0% 633.5

159.8
 43

14


 844.4
Total/Weighted Average$228.2
 39
bps16
bps
 $1,178.2
(A)The MSR is a weighted average as of September 30, 2021, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).
(A)The MSR is a weighted average as of September 30, 2017, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).
(B)We also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 6 to our Condensed Consolidated Financial Statements) on $145.8 billion UPB underlying these Excess MSRs.

(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 6 to our Consolidated Financial Statements) on $21.6 billion UPB underlying these Excess MSRs.

Summary of Excess MSR InvestmentsMSRs Through Equity Method Investees as of September 30, 20172021
MSR Component(A)
Current UPB (billions)Weighted Average MSR (bps)Weighted Average Excess MSR (bps)New Residential Interest in Investee (%)Investee Interest in Excess MSR (%)New Residential Effective Ownership (%)Investee Carrying Value (millions)
Agency$24.2 31 bps21 bps50.0 %66.7 %33.3 %$158.9 
Total/Weighted Average$24.2 31 bps21 bps$158.9 



MSR Component(A)








Current UPB (bn)
Weighted Average MSR (bps)
Weighted Average Excess MSR (bps)
New Residential Interest in Investee (%)
Investee Interest in Excess MSR (%)
New Residential Effective Ownership (%)
Investee Carrying Value (mm)
Agency


















Original and Recaptured Pools$53.7

32
bps20
bps50.0%
66.7%
33.3%
$279.7
Recapture Agreements—

32
 23
 50.0%
66.7%
33.3%
50.3
Total/Weighted Average$53.7

32
bps20
bps








$330.0
(A)The MSR is a weighted average as of September 30, 2021, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).
(A)The MSR is a weighted average as of September 30, 2017, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).




The following table summarizes the collateral characteristics of the loans underlying our direct Excess MSR investmentsMSRs as of September 30, 20172021 (dollars in thousands):
Collateral Characteristics
Current Carrying AmountCurrent Principal BalanceNumber of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
Agency
Original Pools$82,307 $17,923,229 150,628 731 4.5 %227 141 1.5 %26.2 %24.8 %1.9 %22.4 %
Recaptured Loans56,982 10,495,764 66,048 736 3.9 %262 49 — %25.5 %24.6 %1.2 %38.5 %
$139,289 $28,418,993 216,676 733 4.3 %241 105 0.9 %26.0 %24.7 %1.6 %28.4 %
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools$106,967 $28,581,082 166,746 680 4.2 %269 186 8.7 %18.7 %16.8 %2.2 %14.6 %
Recaptured Loans23,924 3,598,781 17,255 743 3.7 %273 30 — %25.4 %25.5 %— %40.1 %
$130,891 $32,179,863 184,001 687 4.2 %269 169 7.1 %19.3 %17.6 %2.0 %18.2 %
Total/Weighted Average(H)
$270,180 $60,598,856 400,677 708 4.2 %256 140 3.9 %22.4 %20.9 %1.9 %23.7 %
77

Collateral Characteristics
Collateral CharacteristicsDelinquencyLoans in
Foreclosure		Real
Estate
Owned		Loans in
Bankruptcy
Current Carrying Amount Current Principal Balance Number of Loans 
WA FICO Score(A)
 WA Coupon WA Maturity (months) Average Loan Age (months) 
Adjustable Rate Mortgage %(B)
 
Three Month Average CPR(C)
 
Three Month Average CRR(D)
 
Three Month Average CDR(E)
 Three Month Average Recapture Rate
30 Days(G)
60 Days(G)
90+ Days(G)
Agency                       Agency
Original Pools$227,407
 $55,909,712
 373,818
 706
 4.5% 280
 99
 9.2% 16.3% 15.3% 1.1% 25.1%Original Pools1.8 %0.5 %4.6 %0.5 %0.1 %0.1 %
Recaptured Loans60,938
 12,540,090
 73,083
 721
 4.3% 292
 27
 0.7% 10.5% 10.2% 0.4% 24.2%Recaptured Loans1.2 %0.3 %3.7 %0.1 %— %— %
Recapture Agreement45,504
 —
 —
 —
 —% —
 —
 —% —% —% —% —%

$333,849
 $68,449,802
 446,901
 709
 4.5% 282
 85
 7.6% 15.2% 14.4% 1.0% 25.0%1.5 %0.4 %4.3 %0.4 %0.1 %0.1 %
Non-Agency(F)
                       
Non-Agency(F)
Nationstar and SLS Serviced:                       
Mr. Cooper and SLS Serviced:Mr. Cooper and SLS Serviced:
Original Pools$179,130
 $64,374,054
 350,584
 670
 4.5% 285
 140
 39.0% 16.5% 12.7% 4.3% 11.6%Original Pools10.8 %6.2 %4.7 %5.5 %0.3 %1.3 %
Recaptured Loans12,140
 3,079,293
 13,600
 740
 4.1% 290
 19
 3.7% 12.3% 12.3% —% 21.4%Recaptured Loans1.4 %0.2 %2.1 %0.1 %— %— %
Recapture Agreement19,561
 —
 —
 —
 —% —
 —
 —% —% —% —% —%
Ocwen Serviced Pools(H)
633,628
 92,270,579
 639,783
 637
 4.5% 314
 143
 16.1% 10.8% 7.6% 3.5% —%

$844,459
 $159,723,926
 1,003,967
 647
 4.5% 306
 141
 25.1% 12.2% 8.9% 3.7% 3.5%9.8 %5.5 %4.4 %4.9 %0.3 %1.2 %
Total/Weighted Average(I)
$1,178,308
 $228,173,728
 1,450,868
 660
 4.5% 301
 129
 19.8% 12.8% 10.0% 3.1% 8.7%
Total/Weighted Average(H)
Total/Weighted Average(H)
6.0 %3.2 %4.3 %2.8 %0.2 %0.7 %

(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.
 Collateral Characteristics
 
Delinquency 30 Days(G)
 
Delinquency 60 Days(G)
 
Delinquency 90+ Days(G)
 Loans in
Foreclosure		 Real
Estate
Owned		 Loans in
Bankruptcy
Agency           
Original Pools4.8% 1.5% 1.2% 1.3% 0.3% 0.3%
Recaptured Loans2.1% 0.5% 0.4% 0.3% 0.1% 0.1%
Recapture Agreement—% —% —% —% —% —%

4.2% 1.3% 1.0% 1.1% 0.3% 0.3%
Non-Agency(F)
           
Nationstar and SLS Serviced:           
Original Pools10.3% 3.0% 2.6% 7.4% 1.4% 2.2%
Recaptured Loans1.4% 0.3% 0.1% —% —% —%
Recapture Agreement—% —% —% —% —% —%
Ocwen Serviced Pools(H)
8.5% 5.0% 6.0% 7.7% 2.1% 1.8%

8.9% 4.4% 5.0% 7.5% 1.9% 1.9%
Total/Weighted Average(I)
7.9% 3.7% 4.2% 6.2% 1.6% 1.5%
(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.
(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 6 to our Condensed Consolidated Financial Statements) on $145.8 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)Collateral characteristics related to approximately $2.2 billion of UPB are as of August 31, 2017.
(I)Weighted averages exclude collateral information for which collateral data was not available as of the report date.

(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 6 to our Consolidated Financial Statements) on $21.6 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.

The following table summarizes the collateral characteristics as of September 30, 20172021 of the loans underlying Excess MSR investmentsMSRs made through joint ventures accounted for as equity method investees (dollars in thousands). For each of these pools, we own a 50% interest in an entity that invested in a 66.7% interest in the Excess MSRs.

Collateral Characteristics
Current Carrying AmountCurrent
Principal
 Balance		New Residential Effective Ownership
(%)		Number
of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan
Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
Agency 
Original Pools$92,577 $12,590,174 33.3 %139,932 715 5.1 %218 160 1.2 %25.2 %22.3 %3.6 %25.3 %
Recaptured Loans66,339 11,640,552 33.3 %88,610 721 4.0 %258 58 — %26.3 %24.3 %3.0 %44.4 %
Total/Weighted Average(G)
$158,916 $24,230,726 228,542 718 4.6 %237 111 1.2 %25.9 %23.3 %3.3 %34.9 %

Collateral Characteristics
DelinquencyLoans in
Foreclosure		Real
Estate
Owned		Loans in
Bankruptcy
30 Days(F)
60 Days(F)
90+ Days(F)
Agency
Original Pools2.5 %0.6 %4.3 %0.7 %0.1 %0.1 %
Recaptured Loans1.6 %0.4 %4.1 %0.1 %— %0.1 %
Total/Weighted Average(G)
2.1 %0.5 %4.2 %0.5 %0.1 %0.1 %
(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.
78

 Collateral Characteristics
 Current Carrying Amount
Current
Principal
 Balance
 
New Residential Effective Ownership
(%)
 
Number
of Loans
 
WA FICO Score(A)
 WA Coupon WA Maturity (months) 
Average Loan
Age (months)
 
Adjustable Rate Mortgage %(B)
 
Three Month Average CPR(C)
 
Three Month Average CRR(D)
 
Three Month Average CDR(E)
 
Three Month Average Recapture Rate
Agency                         
Original Pools$171,301
 $38,271,187
 33.3% 331,939
 689
 5.0% 273
 114
 9.6% 18.0% 15.9% 2.4% 26.5%
Recaptured Loans108,421
 15,404,047
 33.3% 105,141
 703
 4.3% 287
 33
 0.6% 11.7% 11.3% 0.5% 35.4%
Recapture Agreement50,264
 —
 33.3% —
 —
 —% —
 —
 —% —% —% —% —%
Total/Weighted Average(G)
$329,986
 $53,675,234
   437,080
 693
 4.8% 277
 91
 7.0% 16.3% 14.7% 1.9% 28.5%
(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.
 Collateral Characteristics
 
Delinquency 30 Days(F)
 
Delinquency 60 Days(F)
 
Delinquency 90+ Days(F)
 
Loans in
Foreclosure
 
Real
Estate
Owned
 
Loans in
Bankruptcy
Agency           
Original Pools6.3% 1.9% 1.3% 1.9% 0.6% 0.4%
Recaptured Loans3.5% 1.0% 0.6% 0.3% 0.1% 0.1%
Recapture Agreement—% —% —% —% —% —%
Total/Weighted Average(G)
5.5% 1.7% 1.1% 1.4% 0.5% 0.3%
(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 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.

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

Servicer Advance Investments
In December 2013, we made our first Servicer Advance Investments, including the basic fee component of the related MSRs, through the Buyer, a joint venture entity capitalized by us and certain third-party co-investors. The Buyer acquired from Nationstar a pool of outstanding servicer advances (including deferred servicing fees) and the basic fee component of the related MSRs on a pool of Non-Agency mortgage loans. In exchange, the Buyer (i) paid the initial purchase price, and (ii) agreed to purchase future servicer advances related to the loans at par. We previously acquired an interest in the Excess MSRs related to these loans. See above “—Our Portfolio—Servicing Related Assets—Excess MSRs.”
Nationstar remains the named servicer under the related servicing agreements and continues to perform all servicing duties for the underlying loans. The Buyer has the right, but not the obligation, to become the named servicer, subject to obtaining consents and ratings agency approvals required for a formal change of the named servicer. In exchange for Nationstar’s performance of servicing duties, the Buyer pays Nationstar a servicing fee (the “Nationstar Servicing Fee”) and, in the event that the aggregate cash flows from the advances and the basic fee generate a 14% return (the “Buyer Targeted Return”) on the Buyer’s invested equity, a performance fee (the “Nationstar Performance Fee”). Nationstar is majority owned by private equity funds managed by an affiliate of our Manager. For more information about the fee structure, see below.

In December 2014, we acquired Servicer Advance Investments from SLS, as described under “—Excess MSRs” above.


On April 6, 2015, we acquired Servicer Advance Investments in connection with the HLSS Acquisition, as described under “—Excess MSRs” above. In July 2017, we entered into the Ocwen Transaction as described in Note 5 to our condensed consolidated financial statements.


The following is a summary of our Servicer Advance Investments, including the right to the basic fee component of the related MSRs (dollars in thousands):
September 30, 2021
Amortized Cost Basis
Carrying Value(A)
UPB of Underlying Residential Mortgage LoansOutstanding Servicer AdvancesServicer Advances to UPB of Underlying Residential Mortgage Loans
Servicer advance investments
Mr. Cooper and SLS serviced pools$453,442 $472,004 $21,568,182 $408,085 1.9 %
 September 30, 2017
 Amortized Cost Basis 
Carrying Value(A)
 UPB of Underlying Residential Mortgage Loans Outstanding Servicer Advances Servicer Advances to UPB of Underlying Residential Mortgage Loans
Servicer Advance Investments         
Nationstar and SLS serviced pools$1,058,024
 $1,091,358
 $53,468,730
 $924,597
 1.7%
Ocwen serviced pools2,897,351
 2,953,444
 92,295,028
 2,727,108
 3.0%
Total$3,955,375
 $4,044,802
 $145,763,758
 $3,651,705
 2.5%
(A)Carrying value represents the fair value of the Servicer advance investments, including the basic fee component of the related MSRs.
(A)Carrying value represents the fair value of the Servicer Advance Investments, including the basic fee component of the related MSRs.


The following is additional information regarding our Servicer Advance Investments,advance investments, and related financing, as of and for the nine months ended September 30, 20172021 (dollars in thousands):
Nine Months Ended
September 30, 2021
Loan-to-Value (“LTV”)(A)
Cost of Funds(B)
Weighted Average Discount Rate
Weighted Average Life (Years)(C)
Change in Fair Value Recorded in Other IncomeFace Amount of Secured Notes and Bonds PayableGross
Net(D)
GrossNet
Servicer advance
    investments(E)
5.2 %6.0$(6,535)$381,286 89.4 %95.1 %1.3 %1.2 %
      Nine Months Ended 
 September 30, 2017		   
Loan-to-Value (“LTV”)(A)
 
Cost of Funds(B)
  Weighted Average Discount Rate 
Weighted Average Life (Years)(C)
 Change in Fair Value Recorded in Other Income Face Amount of Notes and Bonds Payable Gross 
Net(D)
 Gross Net
Servicer Advance
    Investments(E)
 6.8% 5.1 $70,469
 $3,504,060
 92.5% 91.4% 3.3% 2.9%
(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:
(A)Based on outstanding servicer advances, excluding purchased but unsettled servicer advances and certain deferred servicing fees (“DSF”) which we received financing on. If we were to include these DSF in the servicer advance balance, gross and net LTV as of September 30, 2017 would be 86.6% and 85.6%, respectively. Also excludes retained Non-Agency bonds with a current face amount of $79.9 million from the outstanding servicer advance debt. If we were to sell these bonds, gross and net LTV as of September 30, 2017 would be 94.6% and 93.5%, respectively.2021
(B)Principal and interest advancesAnnualized 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.
$75,564 
(C)Escrow advances (taxes and insurance advances)Weighted Average Life represents the weighted average expected timing of the receipt of expected net cash flows for this investment.
170,817 
(D)Foreclosure advancesRatio of face amount of borrowings to par amount of servicer advance collateral, net of any general reserve.
161,704 
(E)TotalThe following types of advances are included in the Servicer Advance Investments:$408,085 


MSR Related Services Businesses

Our MSR related investments segment also includes the activity from several wholly-owned subsidiaries or minority investments in companies that perform various services in the mortgage and real estate industries. Our subsidiary Guardian is a national provider of field services and property management services. We also made a strategic minority investment in Covius,
79

  September 30, 2017
Principal and interest advances $939,897
Escrow advances (taxes and insurance advances) 1,634,892
Foreclosure advances 1,076,916
Total $3,651,705

The Buyer

We, through a wholly owned subsidiary, areprovider of various technology-enabled services to the managing member of the Buyer.mortgage and real estate industries. As of September 30, 2017, we owned an approximately 72.8%2021, our ownership interest in the Buyer. Covius is 24.3%.




In the event that any member of the Buyer does not fund its capital contribution, each other member has the right, but not the obligation, to make pro rata capital contributions in excess of its stated commitment, provided that any member’s decision not to fund any such capital contribution will result in a reduction of its membership percentage.
Servicing Fee
Nationstar, SLS and Ocwen remain the named servicers under the applicable servicing agreements and will continue to perform all servicing duties for the related residential mortgage loans. The Buyer, or the related New Residential subsidiary, as applicable, has the right, but not the obligation, to become the named servicer with respect to its investments, subject to obtaining consents and ratings agency approvals required for a formal change of the named servicer. In exchange for their services, we pay Nationstar, SLS and Ocwen a monthly servicing fee representing a portion of the amounts from the purchased basic fee.
The Nationstar Servicing Fee is equal to a fixed percentage of the amounts from the purchased basic fee. This percentage was equal to approximately 9.3%, which is equal to (i) 2 bps divided by (ii) the basic fee, which is 21.6 bps on a weighted average basis as of September 30, 2017. The SLS servicing fee is equal to 10.75 bps, based on the servicing fee collections of the underlying loans. The Ocwen servicing fee is equal to 6.0 bps, based on the servicing fee collections of the underlying loans.

Targeted Return/Incentive Fee
The Buyer Targeted Return and the Nationstar Performance Fee, with respect to Nationstar, are designed to achieve three objectives: (i) provide a reasonable risk-adjusted return to the Buyer based on the expected amount and timing of estimated cash flows from the purchased basic fee and advances, with both upside and downside based on the performance of the investment, (ii) provide Nationstar with a sufficient fee to compensate it for acting as servicer, and (iii) provide Nationstar with an incentive to effectively service the underlying loans. The Buyer Targeted Return implements these objectives by allocating payments in respect of the purchased basic fee between the Buyer and Nationstar. The SLS Incentive Fee functions in the same fashion with respect to the SLS Transaction. Ocwen also receives a performance-based incentive fee (the “Ocwen Incentive Fee”) based on the ratio of the outstanding servicer advances to the UPB of the underlying loans.
The amount available to satisfy the Buyer Targeted Return is equal to: (i) the amounts from the purchased basic fee, minus (ii) the Nationstar Servicing Fee (“Nationstar Net Collections”). The Buyer will retain the amount of Nationstar Net Collections necessary to achieve the Buyer Targeted Return. Amounts in excess of the Buyer Targeted Return will be used to pay the Nationstar Performance Fee.
The Buyer Targeted Return, which is payable monthly, is generally equal to (i) 14% multiplied by (ii) the Buyer’s total invested capital. Total invested capital is generally equal to the sum of the Buyer’s (i) equity in advances as of the beginning of the prior month, plus (ii) working capital (equal to a percentage of the equity as of the beginning of the prior month), plus (iii) equity and working capital contributed during the course of the prior month.
The Buyer Targeted Return is calculated after giving effect to (i) interest expense on the advance financing, (ii) other expenses and fees of the Buyer and its subsidiaries related to financing facilities, (iii) write-offs on account of any non-recoverable servicer advances, and (iv) any shortfall with respect to a prior month in the satisfaction of the Buyer Targeted Return.
The Nationstar Performance Fee is calculated as follows. Pursuant to a Master Servicing Rights Purchase Agreement and related sale supplements, Nationstar Net Collections is divided into two subsets: the “Retained Amount” and the “Surplus Amount.” If the amount necessary to achieve the Buyer Targeted Return is equal to or less than the Retained Amount, then 50% of the excess Retained Amount (if any) and 100% of the Surplus Amount is paid to Nationstar as the Nationstar Performance Fee. If the amount necessary to achieve the Buyer Targeted Return is greater than the Retained Amount but less than Nationstar Net Collections, then 100% of the excess Surplus Amount is paid to Nationstar as a Nationstar Performance Fee. Nationstar Performance Fee payments were made to Nationstar in the amount of $28.8 million during the nine months ended September 30, 2017.

The SLS Incentive Fee is equal to up to 4.0 bps on the UPB of the underlying loans, depending on the ratio of the outstanding servicer advances to the UPB of the underlying loans.

The Ocwen Incentive Fee payable in any month is reduced if the advance ratio exceeds a predetermined level for that month. If the advance ratio is exceeded in any month, any performance-based incentive fee payable for such month will be reduced by 1-month LIBOR plus 2.75% (or 275 basis points) per annum of the amount of any such excess servicer advances.

A further discussion of the sensitivity of these incentive fees to changes in LIBOR is included below under “Quantitative and Qualitative Disclosures About Market Risk.”



Residential SecuritiesMortgage Loans

During the third quarter of 2020, New Residential formed several entities that separately issued securitized debt collateralized by non-performing and reperforming residential mortgage loans. New Residential determined that these securitizations should be evaluated for consolidation under the VIE model rather than the voting interest entity model as the equity holders as a group lack the characteristics of a controlling financial interest. Under the VIE model, New Residential’s consolidated subsidiaries had both 1) the power to direct the most significant activities of the securitizations and 2) significant variable interests in each
55
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
of the securitizations, through their control of the related optional redemption feature and their ownership of certain notes issued by the securitizations and, therefore, met the primary beneficiary criterion and, accordingly, the Company consolidated the securitizations. As of September 30, 2021, only one securitization (the “RPL Securitization Trust”) remains outstanding.

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

In May 2021, Newrez issued $750.0 million in notes through a securitization facility (the “2021-1 Securitization Facility”) that bear interest at 30-day LIBOR plus a margin. The 2021-1 Securitization Facility is secured by newly originated, first-lien, fixed- and adjustable-rate residential mortgage loans eligible for purchase by the GSEs and Ginnie Mae. Through a master repurchase agreement, Newrez sells its originated loans to the 2021-1 Securitization Facility, which then issues notes to third party qualified investors, with Newrez retaining the trust certificate. The loans serve as collateral with the proceeds from the note issuance ultimately financing the originations. The 2021-1 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial closing date, (ii) the Company exercising its right to optional prepayment in full, or (iii) a repurchase triggering event. The Company determined it is the primary beneficiary of the 2021-1 Securitization Facility as it has both (i) the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

Caliber Mortgage Participant I, LLC was formed to acquire, receive, participate, hold, release, and dispose of participation interests in certain of Caliber’s mortgage loans held for sale (“MLHFS PC”). The Caliber Mortgage Participant I, LLC transfers the MLHFS PC in exchange for cash. Caliber is the primary beneficiary of the VIE and therefore, consolidates the SPE. The transferred MLHFS PC is classified on the Consolidated Balance Sheets as Residential Mortgage Loans, Held-for-Sale and the related warehouse credit facility liabilities as part of Secured Financing Agreements. Caliber retains the risks and benefits associated with the assets transferred to the SPEs.

Caliber remains the servicer of the underlying mortgage loans and has the power to direct the SPE’s activities. Holders of the term notes issued by the Trust can look only to the assets of the Trust for satisfaction of the debt and have no recourse against Caliber.
Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of September 30, 2021, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

On September 25, 2020, certain entities comprising the Consumer Loan Companies, in a private transaction, issued $663.0 million of asset-backed notes (“SCFT 2020-A”) securitized by a portfolio of consumer loans.

The Consumer Loan Companies consolidate certain entities that issued securitized 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.

MSR Financing Facilities

CHL GMSR Issuer Trust is an SPE created for the purpose of transferring a participation certificate (“MSR PC”) representing a beneficial interest in Caliber’s GNMA MSRs in exchange for a variable funding note (“MSR Financing VFN”) and a trust certificate with Caliber, as well for the issuance of term notes in exchange for cash. Caliber consolidates this SPE because it is the primary beneficiary of the VIE. The MSR PC is classified in Mortgage Servicing Rights and MSR Financing Receivables, at Fair Value and the MSR Financing VFN and term notes are classified as Secured Notes and Bonds Payable on the Consolidated Balance Sheets. The SPE uses collections from a specified portion of GNMA MSR net service fees collected to repay principal and interest and to pay the expenses of the entity.

56
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Additionally, Caliber has also transferred a participation certificate representing a beneficial interest certain of Caliber’s GNMA servicer advances (“Servicer Advance PC”) to CHL GMSR Issuer Trust in exchange for a VFN (“Servicer Advance VFN”). The transferred Servicer Advance PC is classified on the Consolidated Balance Sheets as Servicing Advances Receivable and the related liabilities as part of Accrued Expenses and Other Liabilities. CHL GMSR Issuer Trust uses collections of the pledged advances to repay principal and interest and to pay the expenses of the Servicer Advance VFN.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on the Consolidated Balance Sheets:
The BuyerShelter Joint VenturesResidential Mortgage LoansConsumer Loan SPVsMSR Financing FacilitiesTotal
September 30, 2021
Assets
Mortgage servicing rights, at fair value$— $— $— $— $352,144 $352,144 
Servicer advance investments, at fair value459,812 — — — — 459,812 
Residential mortgage loans, held-for-investment, at fair value— — 98,373 — — 98,373 
Residential mortgage loans, held-for-sale— — 1,856 — — 1,856 
Residential mortgage loans, held-for-sale, at fair value— — 1,191,416 — — 1,191,416 
Consumer loans, held-for-investment, at fair value— — — 547,598 — 547,598 
Cash and cash equivalents37,138 37,339 2,102 — — 76,579 
Restricted cash2,377 — 170 7,430 — 9,977 
Other assets9 1,825 4,545 7,349 361,238 374,966 
Total Assets$499,336 $39,164 $1,298,462 $562,377 $713,382 $3,112,721 
Liabilities
Secured financing agreements(A)
$— $— $133,227 $— $— $133,227 
Secured notes and bonds payable(A)
374,025 — 1,048,821 497,346 367,871 2,288,063 
Accrued expenses and other liabilities925 6,570 13,848 886 106 22,335 
Total Liabilities$374,950 $6,570 $1,195,896 $498,232 $367,977 $2,443,625 
December 31, 2020
Assets
Servicer advance investments, at fair value$522,901 $— $— $— $— $522,901 
Residential mortgage loans, held-for-investment, at fair value— — 358,629 — — 358,629 
Residential mortgage loans, held-for-sale— — 346,250 — — 346,250 
Residential mortgage loans, held-for-sale, at fair value— — 614,868 — — 614,868 
Consumer loans, held-for-investment— — — 682,932 — 682,932 
Cash and cash equivalents53,012 39,031 — — — 92,043 
Restricted cash2,808 — — 8,090 — 10,898 
Other assets891 9,151 30,621 9,201 — 49,864 
Total Assets$579,612 $48,182 $1,350,368 $700,223 $— $2,678,385 
Liabilities
Secured notes and bonds payable(A)
$414,576 $— $1,034,093 $628,759 $— $2,077,428 
Accrued expenses and other liabilities1,092 9,455 1,661 764 — 12,972 
Total Liabilities$415,668 $9,455 $1,035,754 $629,523 $— $2,090,400 
(A)The creditors of the VIEs do not have recourse to the general credit of New Residential, and the assets of the VIEs are not directly available to satisfy New Residential’s obligations.

57
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Non-Consolidated VIEs

The following table comprises bonds held in unconsolidated VIEs and retained pursuant to required risk retention regulations:
As of and for the
Nine Months Ended
September 30,
20212020
Residential mortgage loan UPB$11,403,079 $14,779,498 
Weighted average delinquency(A)
4.70 %3.15 %
Net credit losses$118,958 $28,874 
Face amount of debt held by third parties(B)
$10,475,990 $12,817,104 
Carrying value of bonds retained by New Residential(C)(D)
$965,846 $1,692,841 
Cash flows received by New Residential on these bonds$260,306 $151,852 
(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by New Residential.
(C)Includes bonds retained pursuant to required risk retention regulations.
(D)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 12 for details on unobservable inputs.

Noncontrolling Interests

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

Others’ interests in the equity of consolidated subsidiaries is computed as follows:
September 30, 2021December 31, 2020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$124,386 $32,594 $88,312 $163,944 $38,727 $96,418 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.1 %46.5 %
Others’ interest in equity of consolidated subsidiary$13,283 $16,134 $41,606 $43,882 $19,402 $45,384 

Others’ interests in the net income (loss) is computed as follows:
Three Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(2,614)$6,125 $13,438 $9,761 $9,649 $9,006 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(280)$3,032 $6,249 $2,612 $4,840 $4,188 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

58
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Nine Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(4,546)$19,762 $41,855 $(162)$21,017 $50,795 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(797)$9,782 $19,463 $(44)$10,542 $23,620 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

14.    EQUITY AND EARNINGS PER SHARE
 
Real EstateEquity and Dividends

On February 11, 2020, the Company priced its underwritten public offering of 14,000,000 of its 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $389.5 million. The offering closed on February 14, 2020. In connection with the offering, the underwriters exercised an option to purchase up to an additional 2,100,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.6 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $1.0 million as of the grant date.

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


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

On May 19, 2021, 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”). No share issuances were made during the three months ended September 30, 2021.

On September 14, 2021, the Company priced its underwritten public offering of 17,000,000 of its 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, New Residential granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to approximately 1.9 million shares of New Residential’s common stock at $10.89 per share.

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series. The table below summarizes preferred stock:
59
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Dividends Declared per Share
Number of SharesThree Months Ended
September 30,		Nine Months Ended
September 30,
SeriesSeptember 30, 2021December 31, 2020
Liquidation Preference(A)
Issuance Discount
Carrying Value(B)
2021202020212020
Series A, 7.50% issued July 2019(C)
6,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 $1.41 $1.41 
Series B, 7.125% issued August 2019(C)
11,300 11,300 282,500 3.15 %273,418 0.45 0.45 1.34 1.34 
Series C, 6.375% issued February 2020(C)
16,100 16,100 402,500 3.15 %389,548 0.40 0.40 1.20 1.20 
Series D, 7.00%, issued September 2021(D)
18,600 — 465,000 3.15 %449,506 0.28 — 0.28 — 
Total52,210 33,610 $1,305,250 $1,262,498 $1.60 $1.32 $4.23 $3.95 
(A)Each series has a liquidation preference or par value of $25.00 per share.
(B)Carrying value reflects par value less discount and issuance costs.
(C)Fixed-to-floating rate cumulative redeemable preferred.
(D)Fixed-rate reset cumulative redeemable preferred.

On September 22, 2021, New Residential’s board of directors declared third quarter 2021 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, $0.40 per share of Preferred Series C, and $0.28 per share of Preferred Series D or $2.9 million, $5.0 million, $6.4 million, and $1.2 million, respectively.

Common dividends have been declared as follows:
Declaration DatePayment DatePer ShareTotal Amounts Distributed (millions)
Quarterly Dividend
March 31, 2020April 2020$0.05 $20.8 
June 22, 2020July 20200.10 41.6 
September 23, 2020October 20200.15 62.4 
December 16, 2020January 20210.20 82.9 
March 24, 2021April 20210.20 82.9 
June 16, 2021August 20210.20 93.3 
August 23, 2021October 20210.25 116.6 

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at September 30, 2021.

Common Stock Purchase Warrants

During the second quarter of 2020, the Company issued warrants (the “2020 Warrants”) in conjunction with the issuance of a term loan, which was fully repaid in the third quarter of 2020, that provide the holders the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution adjustments): approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share.

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

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NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The table below summarizes the 2020 Warrants at September 30, 2021:
Number of Warrants
(in millions)		Weighted Average Exercise Price
(per share)
Outstanding warrants - December 31, 202043.4 $6.79 
Granted— — 
Exercised— — 
Expired— — 
Outstanding warrants - September 30, 202143.4 6.58 (A)
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

Option Plan

As of September 30, 2021, outstanding options were as follows:
Held by the Manager18,700,175 
Issued to the Manager and subsequently assigned to certain of the Manager’s employees2,753,980 
Issued to the independent directors6,000 
Total21,460,155 

The following table summarizes our Agency RMBS portfoliooutstanding options as of September 30, 2017 (dollars2021. The last sales price on the New York Stock Exchange for New Residential’s common stock in thousands):the quarter ended September 30, 2021 was $11.00 per share.
Recipient
Date of
Grant/
Exercise(A)
Number of Unexercised
Options
Options
Exercisable
as of
September 30, 2021
Weighted
Average
Exercise
Price(B)
Intrinsic Value of Exercisable Options as of
September 30, 2021
(millions)
DirectorsVarious6,000 6,000 $13.46 $— 
Manager(C)
20171,130,916 1,130,916 13.78 — 
Manager(C)
20185,320,000 5,320,000 16.50 — 
Manager(C)
20196,351,000 6,000,800 15.93 — 
Manager(C)
20201,619,739 1,025,835 17.23 — 
Manager(C)
20217,032,500 862,083 10.10 0.78
Outstanding21,460,155 14,345,634 
        Gross Unrealized          
Asset Type Outstanding Face Amount Amortized Cost Basis Percentage of Total Amortized Cost Basis Gains Losses 
Carrying
Value(A)
 Count Weighted Average Life (Years) 3-Month CPR Outstanding Repurchase Agreements
Agency ARM RMBS $113,553
 $124,474
 10.4% $—
 $(5,549) $118,925
 26
 4.5
 22.0% $126,624
Agency Specified Pools 1,010,000
 1,070,807
 89.6% 1,352
 (428) 1,071,731
 42
 7.9
 1.8% 8,472
Agency RMBS $1,123,553
 $1,195,281
 100.0% $1,352
 $(5,977) $1,190,656
 68
 7.6
 3.9% $126,624
(A)Options expire on the tenth anniversary from date of grant.
(B)The exercise prices are subject to adjustment in connection with return of capital dividends.
(C)The Manager assigned certain of its options to its employees as follows:
Date of Grant to ManagerRange of Exercise
Prices		Total Unexercised
Inception to Date
2018$16.37 to $17.841,159,833 
2019$14.96 to $16.501,270,200 
2020$16.84 to $17.23323,947 
Total2,753,980 
 
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(A)NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
Fair value, which is equal to carrying value for all securities.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 

The following table summarizes activity in outstanding options:
AmountWeighted Average Exercise Price
Outstanding options - December 31, 202014,428,655 
Granted7,032,500 $10.31 
Exercised— — 
Expired(1,000)12.36 
Outstanding options - September 30, 202121,460,155 See table above

Earnings Per Share

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

The following table summarizes the reset datesbasic and diluted earnings per share calculations:
Three Months Ended
September 30, 2021		Nine Months Ended
September 30,
2021202020212020
Net income (loss)$170,681 $103,920 $617,743 $(1,459,206)
Noncontrolling interests in income of consolidated subsidiaries9,001 11,640 28,448 34,118 
Dividends on preferred stock15,533 14,359 44,249 39,938 
Net income (loss) attributable to common stockholders$146,147 $77,921 $545,046 $(1,533,262)
Basic weighted average shares of common stock outstanding466,579,920 415,744,518 446,085,657 415,665,441 
Dilutive effect of stock options and common stock purchase warrants(A)
15,702,775 5,224,108 15,608,824 — 
Diluted weighted average shares of common stock outstanding482,282,695 420,968,626 461,694,481 415,665,441 
Basic earnings per share attributable to common stockholders$0.31 $0.19 $1.22 $(3.69)
Diluted earnings per share attributable to common stockholders$0.30 $0.19 $1.18 $(3.69)
(A)Stock options and common stock purchase warrants that could potentially dilute basic earnings per share in the future were not included in the computation of our Agency ARM RMBS portfoliodiluted earnings per share for the periods where a loss has been recorded because they would have been anti-dilutive for the period presented.

The Company excluded the following weighted-average potential common shares from the calculation of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:
Three Months Ended
September 30, 2021		Nine Months Ended
September 30,
2021202020212020
Stock options and common stock purchase warrants— — — 5,966,141 




62
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
15. COMMITMENTS AND CONTINGENCIES
Litigation — New Residential is or may become, from time to time, involved in various disputes, litigation and regulatory inquiry and investigation matters that arise in the ordinary course of business. Given the inherent unpredictability of these types of proceedings, it is possible that future adverse outcomes could have a material adverse effect on its business, financial position or results of operations. New Residential is not aware of any unasserted claims that it believes are material and probable of assertion where the risk of loss is expected to be reasonably possible.

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

Indemnifications — In the normal course of business, New Residential and its subsidiaries enter into contracts that contain a variety of representations and warranties and that provide general indemnifications. New Residential’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against New Residential that have not yet occurred. However, based on its experience, New Residential expects the risk of material loss to be remote.
Capital Commitments — As of September 30, 2021, New Residential had outstanding capital commitments related to investments in the following investment types (also refer to Note 5 for MSR investment commitments and to Note 18 for additional capital commitments entered into subsequent to September 30, 2021, if any):

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

•Mortgage Origination Reserves — Newrez and Caliber, both wholly-owned subsidiaries of New Residential, currently originate, or have in the past originated, conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government insured mortgage securitizations and mortgage investors issue nonconforming private label mortgage securitizations while Newrez and Caliber respectively generally retain the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, Newrez and Caliber respectively make 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 and Caliber respectively generally have an obligation to cure the breach. If Newrez and Caliber respectively are unable to cure the breach, the purchaser may require Newrez or Caliber, as applicable, to repurchase the loan.

In addition, as issuers of Ginnie Mae guaranteed securitizations, Newrez and Caliber each hold the right to repurchase loans that are at least 90 days’ delinquent from the securitizations at their discretion. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. While Newrez and Caliber are not obligated to repurchase the delinquent loans, Newrez and Caliber generally exercise their respective options to repurchase loans that will result in an economic benefit. As of September 30, 2021, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $36.8 million and $1.8 billion, respectively. See Note 5 for information on regarding the right to repurchase delinquent loans from Ginnie Mae securities and mortgage origination.

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

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NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
•Consumer Loans — The Consumer Loan Companies have invested in loans with an aggregate of $250.1 million of unfunded and available revolving credit privileges as of September 30, 2017 (dollars2021. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at New Residential’s discretion.

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

New Residential, through its wholly-owned subsidiaries, has leases on office space expiring through 2033. Rent expense, net of sublease income for the three months ended September 30, 2021 and 2020 totaled $7.0 million and $3.4 million, respectively, and $14.0 million and $10.5 million for the nine months ended September 30, 2021 and 2020, respectively. The Company has leases that include renewal options and escalation clauses. The terms of the leases do not impose any financial restrictions or covenants.

As of September 30, 2021, future commitments under the non-cancelable leases are as follows:
Year EndingAmount
October 1 through December 31, 2021$11,649 
202239,173 
202327,181 
202420,032 
202515,687 
2026 and thereafter40,721 
Total remaining undiscounted lease payments154,443 
Less: imputed interest14,005 
Total remaining discounted lease payments$140,438 

The future commitments under the non-cancelable leases have not been reduced by the sublease rentals of $1.6 million due in thousands):the future periods.

            Weighted Average
                Periodic Cap    
Months to Next Reset(A)
 Number of Securities Outstanding Face Amount Amortized Cost Basis Percentage of Total Amortized Cost Basis Carrying Value Coupon Margin 
1st Coupon Adjustment(B)
 
Subsequent Coupon Adjustment(C)
 
Lifetime Cap(D)
 
Months to Reset(E)
1 - 12 26
 $113,553
 $124,474
 100.0% $118,925
 3.4% 1.7% N/A 1.9% 8.9% 5
Other information related to operating leases is summarized below:
September 30, 2021December 31, 2020
Weighted-average remaining lease term (years)5.63.2
Weighted-average discount rate3.7 %4.5 %

Environmental Costs — As a residential real estate owner, New Residential is subject to potential environmental costs. At September 30, 2021, New Residential is not aware of any environmental concerns that would have a material adverse effect on its consolidated financial position or results of operations.

Debt Covenants — Certain of the Company’s debt obligations are subject to loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in New Residential’s equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. Refer to Note 11.
 
Certain Tax-Related Covenants — If New Residential is treated as a successor to Drive Shack Inc. (“Drive Shack”) under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2014, New Residential could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement executed in connection with New Residential’s spin-off from Drive Shack, Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause New Residential to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Residential as necessary to enable New Residential to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to New Residential and its tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders, and its operation as a REIT; and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2014 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the U.S. Internal Revenue Service
64
(A)NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
Of these investments, 94.5% reset based on 12-month LIBOR index, 3.2% reset based on one-month LIBOR,NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and 2.3% reset based on the one-year Treasury Constant Maturity Rate.per share data) 
(“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.

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

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

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

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

In March 2020, the Company and certain of its subsidiaries sold (collectively, the “Sale”) through a broker-dealer to 6 purchasers (collectively, “the Purchasers”) of a portfolio consisting of non-agency residential mortgage-backed securities with an aggregate face value of approximately $6.1 billion (the “Securities”). The Sale generated proceeds of approximately $3.3 billion in the aggregate, excluding any unpaid but accrued interest. The Purchasers included an entity affiliated with funds managed by an affiliate of the Manager (the “Fortress Purchaser”), which purchased approximately $1.85 billion of Securities in aggregate face value for approximately $1.0 billion. In connection with the sale of the Securities to the Fortress Purchaser, the Company agreed to exercise certain rights, including call rights, that the Company holds under the securitization
65
(B)NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
Represents the maximum changeNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in the coupon at the end of the fixed rate period. All securitiestables in this category are past the first coupon adjustment.thousands, except share and per share data) 
transactions with respect to the Securities sold to the Fortress Purchaser solely upon written direction by the Fortress Purchaser. Such rights include the rights, if any, to (i) amend and/or terminate the transactions contemplated by certain related residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements, (ii) acquire certain of the related residential mortgage loans, real estate owned and certain other assets in the trust subject to such residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements in connection with such amendment or termination against delivery of the applicable termination payment, and (iii) if applicable, direct certain related servicers, holders of subordinate securities and/or other applicable parties, to exercise the rights in (i) and (ii). Pursuant to such agreement, the Company and the Fortress Purchaser would share equally in any profits or losses arising from the exercise of any such rights, other than if the Company elects not to participate in the related transaction, in which case the Fortress Purchaser would realize all of the profits and bear all of the losses with respect thereto. 

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

On June 30, 2021, the Company entered into a senior credit agreement and a senior subordinated credit agreement whereby the Company, and the other lenders party thereto, made term loans to an entity affiliated with funds managed by an affiliate of the Manager. The senior loan bears cash interest at a fixed rate equal to 10.5% per annum and the senior subordinated loan bears paid-in-kind interest at a rate equal to 16.0% per annum, subject to certain adjustments as set forth in the respective credit agreements. As of September 30, 2021, the principal balance of the Company’s portion of the senior loan and the senior subordinated loan was $181.3 million and $52.0 million, respectively.

Due to affiliates consists of the following:
September 30, 2021December 31, 2020
Management fees$8,265 $7,478 
Expense reimbursements and other630 1,972 
Total$8,895 $9,450 
Affiliate expenses and fees consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Management fees$24,315 $22,482 $70,154 $66,682 
Expense reimbursements(A)
125 125 375 375 
Total$24,440 $22,607 $70,529 $67,057 
(A)Included in General and administrative expenses in the Consolidated Statements of Income.
See Note 4 regarding co-investments with Fortress-managed funds.

See Note 14 regarding options granted to the Manager.

66
(C)Represents the maximum change in the coupon at each reset date subsequent to the first coupon adjustment.
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
(D)Represents the maximum coupon on the underlying security over its life.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(E)Represents recurrent weighted average months to the next interest rate reset.(dollars in tables in thousands, except share and per share data) 

17.    INCOME TAXES
Income tax expense (benefit) consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Current:
Federal$2,813 $— $6,932 $(7,877)
State and local1,415 1,438 2,283 1,496 
Total current income tax expense (benefit)4,228 1,438 9,215 (6,381)
Deferred:
Federal23,690 77,300 100,842 (29,921)
State and local3,641 22,074 18,684 (12,345)
Total deferred income tax expense (benefit)27,331 99,374 119,526 (42,266)
Total income tax expense (benefit)$31,559 $100,812 $128,741 $(48,647)
New Residential intends to qualify as a REIT for each of its tax years through December 31, 2021. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.
New Residential operates various business segments, including servicing, origination, and MSR related investments, through taxable REIT subsidiaries (“TRSs”) that are subject to regular corporate income taxes, which have been provided for in the provision for income taxes, as applicable. Refer to Note 3 for further details.

As of September 30, 2021, New Residential recorded a net deferred tax liability of $407.6 million, including $280.0 million of deferred tax liability recorded as part of the purchase price allocation related to the Caliber acquisition (Note 1). The deferred tax liability of $407.6 million is primarily composed of deferred tax liabilities generated through the deferral of gains from loans sold by the origination business and changes in fair value of MSRs, loans, and swaps held within taxable entities.

18.    SUBSEQUENT EVENTS
These financial statements include a discussion of material events that have occurred subsequent to September 30, 2021 through the issuance of these Consolidated Financial Statements. Events subsequent to that date have not been considered in these financial statements.

Subsequent to September 30, 2021, New Residential announced that it had entered into a definitive agreement with affiliates of The Goldman Sachs Group, Inc. to acquire Genesis Capital LLC (“Genesis”), a leading business purpose lender that provides innovative solutions to developers of new construction, fix and flip and rental hold projects, and acquire a related portfolio of loans. The acquisition of Genesis is expected to close in the fourth quarter of 2021, subject to certain approvals and customary closing conditions.




67

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

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

As permitted by SEC Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, this section discusses our results of operations for the current quarter ended September 30, 2021 compared to the immediately preceding prior quarter ended June 30, 2021.
GENERAL
New Residential is a publicly traded REIT primarily focused on opportunistically investing in, and actively managing, investments related to the residential real estate market. We seek to generate long-term value for our investors by using our investment expertise to identify, create and invest primarily in mortgage related assets, including operating companies, that offer attractive risk-adjusted returns. Our investment strategy also involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of the mortgage loans we originate and service by offering products and services to customers, servicers, and other parties through the lifecycle of transactions that affect each mortgage loan and underlying residential property. For more information about our investment guidelines, see “Item 1. Business — Investment Guidelines” of our annual report on Form 10-K for the year ended December 31, 2020.

As of September 30, 2021, we had $42 billion in total assets and 12,749 employees employed by our operating entities.

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

OUR MANAGER

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

STRATEGIC INVESTMENTS AND ACQUISITIONS

On April 14, 2021, we entered into a purchase agreement to acquire all of the assets and liabilities of Caliber through the acquisition of its outstanding common stock. On August 23, 2021, we completed the acquisition of all of the outstanding equity interests of Caliber from LSF Pickens Holdings, LLC for a purchase price of $1.318 billion in cash. Caliber is a leading mortgage originator and servicer. As a result of the acquisition, we expect to increase our scale and market position in the mortgage market.

Subsequent to September 30, 2021, we announced that we had entered into a definitive agreement with affiliates of The Goldman Sachs Group, Inc. (“Goldman Sachs”) to acquire Genesis, a leading business purpose lender that provides innovative solutions to developers of new construction, fix and flip and rental hold projects, and acquire a related portfolio of loans. Genesis adds a new complementary business line and adds business purpose lending to our suite of products. Furthermore, we believe the acquisition supports our growing single-family rental strategy that allows us to capture additional unmet demand from our Retail and Wholesale origination channels. We intend to finance the transaction with existing cash and committed asset-based financing from Goldman Sachs. The acquisition of Genesis is expected to close in the fourth quarter of 2021, subject to certain approvals and customary closing conditions.

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CAPITAL ACTIVITIES

On September 14, 2021, we priced our underwritten public offering of 17,000,000 of our 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, we granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for us, we granted options to the Manager relating to approximately 1.9 million shares of our common stock at $10.89 per share.

The Company intends to use the net proceeds from the offering for general corporate purposes.

MARKET CONSIDERATIONS

Incoming economic data and indicators regarding the overall financial health and condition of the U.S. for the third quarter of 2021 were somewhat mixed. On balance, the broader financial markets remained relatively unchanged during the third quarter despite inflation concerns and potential headwinds over the spread of the more-contagious, more-vaccine-resistant COVID-19 “Delta” variant. The U.S. real gross domestic product (“GDP”) increased during the quarter, albeit at a slower rate compared to the first half of 2021. Labor market conditions continued to improve with the total unemployment rate stepping down notably to 4.8% at September 30, 2021 from 5.9% at June 30, 2021. The consumer price inflation—as measured by the 12-month percentage change in the personal consumption expenditures (“PCE”) price index—remained elevated and well above the Federal Reserve’s longer-term goal of 2.0%, largely driven by supply constraints and bottlenecks.

Consumer spending slowed in the third quarter after expanding markedly in the first half of 2021. The spread of the Delta variant in conjunction with lower inventories and higher prices due to supply constraints tempered consumer spending on goods and services across the board.

Housing demand remained strong during the quarter despite shortages in materials, with construction of single-family homes and home sales remaining above pre-pandemic levels, and house prices rising further. In the residential mortgage market, financing conditions during the third quarter of 2021 remained accommodative for credit-worthy borrowers who met standard conforming loan criteria. Mortgage rates increased slightly during the quarter but remained very low by historical standards. Credit availability continued to improve, especially for jumbo loans and lower-score FHA borrowers. Mortgage originations for home-purchases and refinancing were solid throughout the quarter. The share of mortgages in forbearance declined further. While loan originations benefited from low interest rates, including the recent elimination of the 0.5% mortgage refinancing pandemic fee imposed by Fannie Mae and Freddie Mac, gain on sale margins continued to tighten, driven by the Federal Reserve’s talk of increasing interest rates and potential tapering of mortgage bond purchases, as well as increased competition among loan originators seeking to capture volume and market share from a shrinking pool of eligible borrowers.

The U.S. economic outlook for the remainder of the year continues to be uncertain and still largely dependent on the course of COVID-19. While the FDA’s first fully approved COVID-19 vaccine in late August 2021 aided in slowing the spread of COVID-19, the overall number of infections remained elevated, which in turn is expected to exert a larger amount of restraint on consumer spending, hiring, and labor supply than previously anticipated earlier in the year. Real GDP is expected to rise more slowly but at a still-solid pace, supported by the continued reopening of the economy and potential easing of supply chain disruptions.

The market conditions discussed above influence our investment strategy and results, many of which have been significantly impacted since mid-March 2020 by the ongoing COVID-19 pandemic.

The following table summarizes the net interest spread of our Agency RMBS portfolio as of September 30, 2017:U.S. gross domestic product estimates annualized rate by quarter:
Three Months Ended
September 30,
2021		June 30,
2021		March 31,
2021		December 31, 2020September 30, 2020
Real GDP2.0 %6.7 %6.3 %4.3 %33.4 %
Net Interest Spread(A)
Weighted Average Asset Yield2.96%
Weighted Average Funding Cost1.35%
Net Interest Spread1.61%
(A)The Agency RMBS portfolio consists of 10.4% floating rate securities and 89.6% fixed rate securities (based on amortized cost basis). See table above for details on rate resets of the floating rate securities.

Non-Agency RMBS
The following table summarizes our Non-Agency RMBS portfolio as of September 30, 2017 (dollars in thousands):
      Gross Unrealized    
Asset Type Outstanding Face Amount Amortized Cost Basis Gains Losses 
Carrying
Value(A)
 Outstanding Repurchase Agreements
Non-Agency RMBS $11,906,608
 $5,136,883
 $412,213
 $(24,906) $5,524,190
 $4,316,544
(A)Fair value, which is equal to carrying value for all securities.



The following tables summarize the characteristics of our Non-Agency RMBS portfolio and of the collateral underlying our Non-Agency RMBS as of September 30, 2017 (dollars in thousands):
  
Non-Agency RMBS Characteristics(A)
  
Vintage(B)
 
Average Minimum Rating(C)
 Number of Securities Outstanding Face Amount Amortized Cost Basis Percentage of Total Amortized Cost Basis Carrying Value 
Principal Subordination(D)
 
Excess Spread(E)
 Weighted Average Life (Years) 
Weighted Average Coupon(F)
Pre 2006 CC 419
 $1,945,400
 $1,372,963
 26.9% $1,535,404
 13.1% 1.7% 8.3 2.4%
2006 CC 111
 2,450,002
 1,524,005
 29.8% 1,642,422
 7.3% 2.1% 8.6 1.6%
2007 CCC- 92
 2,896,107
 1,641,641
 32.1% 1,744,402
 6.9% 1.3% 7.8 1.9%
2008 and later BBB 128
 4,590,627
 569,226
 11.2% 569,712
 7.6% —% 3.3 2.5%
Total/Weighted Average CCC- 750
 $11,882,136
 $5,107,835
 100.0% $5,491,940
 8.9% 1.5% 7.7 2.0%
  
Collateral Characteristics(A) (G)
Vintage(B)
 Average Loan Age (years) 
Collateral Factor(H)
 
3-Month CPR(I)
 
Delinquency(J)
 Cumulative Losses to Date
Pre 2006 12.8
 0.09
 11.5% 12.7% 12.4%
2006 11.5
 0.15
 10.2% 14.1% 29.6%
2007 10.6
 0.29
 10.5% 13.4% 33.6%
2008 and later 11.8
 0.80
 12.7% 3.3% 1.6%
Total/Weighted Average 11.6
 0.26
 11.0% 12.2% 22.9%
(A)Excludes $24.5 million face amount of bonds backed by consumer loans.
(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 218 bonds with a carrying value of $335.8 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 September 30, 2017.
(D)The percentage of amortized cost basis of securities and residual interests that is subordinate to our investments. This excludes interest-only bonds.
(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 September 30, 2017.
(F)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $161.1 million and $0.0 million, respectively, for which no coupon payment is expected.
(G)The weighted average loan size of the underlying collateral is $176.8 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.


The following table summarizes the netU.S. unemployment rate according to the U.S. Department of Labor:
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September 30,
2021		June 30,
2021		March 31,
2021		December 31, 2020September 30,
2020
Unemployment rate4.8 %5.9 %6.0 %6.7 %7.9 %

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:
September 30,
2021		June 30,
2021		March 31,
2021		December 31,
2020		September 30,
2020
10-year U.S. Treasury rate1.6 %1.5 %1.7 %0.9 %0.7 %
30-year fixed mortgage rate2.9 %3.0 %3.1 %2.7 %2.9 %

We believe the estimates and assumptions underlying our Consolidated Financial Statements are reasonable and supportable based on the information available as of September 30, 2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may materially differ from those estimates. The COVID-19 pandemic and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions.

UPCOMING CHANGES TO LIBOR

The London Interbank Offered Rate (“LIBOR”) is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest spreadrate swaps and other derivatives. It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. In addition, on March 5, 2021, the ICE Benchmark Administration confirmed its intention to ease publication of (i) one week and two-month USD LIBOR settings after December 31, 2021 and (ii) the remaining USD LIBOR settings after June 30, 2023. The U.S. and other countries are currently working to replace LIBOR with alternative reference rates. In the U.S., the Alternative Reference Rates Committee (“ARRC”), has identified the Secured Overnight Financing Rate (“SOFR”), as its preferred alternative rate for U.S. dollar-based LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants may continue to explore whether other U.S. dollar-based reference rates would be more appropriate for certain types of instruments. The ARRC has proposed a paced market transition plan to SOFR, and various organizations are currently working on industry wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks and our Non-Agency RMBSexposure.

In preparation for the phase-out of LIBOR, we adopted and implemented the SOFR index for our Freddie Mac and Fannie Mae adjustable-rate mortgages (“ARMs”) and non-QM loans. For debt facilities that do not mature prior to the phase-out of LIBOR, we have implemented amending terms to transition to an alternative benchmark. We continue to evaluate the transitional impact to serviced ARMs.

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OUR PORTFOLIO

Our portfolio, as of September 30, 2017:2021, consists of servicing and origination, including our subsidiary operating entities, residential securities and loans and other investments, as described in more detail below (dollars in thousands).
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related InvestmentsTotal Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
September 30, 2021
Investments$11,714,006 $4,848,688 $3,017,963 $19,580,657 $9,973,795 $2,958,434 $547,795 $— $33,060,681 
Cash and cash equivalents768,301 102,825 321,924 1,193,050 171,532 53 1,778 265 1,366,678 
Restricted cash35,284 87,969 29,525 152,778 15,704 1,457 24,806 — 194,745 
Other assets1,484,399 2,582,560 2,072,971 6,139,930 368,724 131,996 38,987 272,906 6,952,543 
Goodwill11,836 12,540 5,092 29,468 — — — — 29,468 
Total assets$14,013,826 $7,634,582 $5,447,475 $27,095,883 $10,529,755 $3,091,940 $613,366 $273,171 $41,604,115 
Debt$11,390,069 $3,201,575 $3,779,105 $18,370,749 $9,663,568 $2,392,505 $499,669 $624,435 $31,550,926 
Other liabilities583,220 2,389,688 108,326 3,081,234 (6,108)182,653 746 167,551 3,426,076 
Total liabilities11,973,289 5,591,263 3,887,431 21,451,983 9,657,460 2,575,158 500,415 791,986 34,977,002 
Total equity2,040,537 2,043,319 1,560,044 5,643,900 872,295 516,782 112,951 (518,815)6,627,113 
Noncontrolling interests in equity of consolidated subsidiaries16,134 — 13,283 29,417 — — 41,606 — 71,023 
Total New Residential stockholders’ equity$2,024,403 $2,043,319 $1,546,761 $5,614,483 $872,295 $516,782 $71,345 $(518,815)$6,556,090 
Investments in equity method investees$— $— $103,956 $103,956 $— $— $— $— $103,956 

Operating Investments

Origination

For the three months ended September 30, 2021, loan origination volume was $34.5 billion, up from $23.5 billion in the quarter prior. Funded volumes by channel represented roughly 19%, 16%, 13% and 52% of total volume for Direct to Consumer, Retail / Joint Venture, Wholesale and Correspondent, respectively, as compared to 27%, 4%, 10% and 58% for the three months ended June 30, 2021. The increase in funded volumes quarter over quarter was primarily driven by the addition of the Caliber origination platform following the close of the Caliber acquisition in August 2021. Pull-through adjusted lock volume was $31.7 billion, compared to $20.5 billion in the prior quarter. During the three months ended September 30, 2021, refinance activity represented 52% of overall funded volumes and purchase activity represented 48% of overall funded volumes. This compared to 64% for refinance and 36% for purchase, respectively, in the prior quarter. Caliber represented approximately 15% and 11% of total purchase and refinance activity, respectively, for the third quarter. Purchase activity for the broader industry is expected to continue to increase. Gain on sale margin for the three months ended September 30, 2021 was 1.61%, 30 bps higher than the 1.31% for the prior quarter primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. While increased competition and capacity have driven gain on sale margins from their highs in 2020, we expect margins to stabilize, especially in third-party originated channels, as industry capacity adjusts to demand.

Included in our Origination segment are the financial results of two affiliated businesses, E Street Appraisal Management LLC (“E Street”) and Avenue 365 Lender Services, LLC (“Avenue 365”). E Street offers appraisal valuation services and Avenue 365 provides title insurance and settlement services to Newrez and Caliber.

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Net Interest Spread(A)
Weighted Average Asset Yield5.77%
Weighted Average Funding Cost2.76%
Net Interest Spread3.01%
The following table provides loan production by channel and product:
(A)The Non-Agency RMBS portfolio consists of 92.0% floating rate securities and 8.0% fixed rate securities (based on amortized cost basis).

Unpaid Principal Balance
Three Months EndedNine Months Ended
(in millions)September 30, 2021% of TotalJune 30, 2021% of TotalSeptember 30, 2021% of TotalSeptember 30, 2020% of TotalQoQ ChangeYoY Change
Production by Channel
  Direct to Consumer$6,425 19 %$6,404 27 %$18,502 22 %$8,571 23 %$21 $9,931 
  Retail / Joint Venture5,556 16 %1,007 4 %7,613 9 %2,789 7 %4,549 4,824 
  Wholesale4,476 13 %2,413 10 %9,561 11 %4,893 13 %2,063 4,668 
  Correspondent18,017 52 %13,656 58 %49,491 58 %21,494 57 %4,361 27,997 
Total Production by Channel$34,474 100 %$23,480 100 %$85,167 100 %$37,747 100 %$10,994 $47,420 
Production by Product
  Agency$24,709 72 %$17,649 75 %$61,942 73 %$24,316 64 %$7,060 $37,626 
  Government8,872 26 %5,632 24 %21,978 26 %12,709 34 %3,240 9,269 
  Non-QM184 1 %63 — %247 — %365 1 %121 (118)
  Non-Agency602 2 %120 1 %860 1 %294 1 %482 566 
  Other107 — %16 — %140 — %63 — %91 77 
Total Production by Product$34,474 100 %$23,480 100 %$85,167 100 %$37,747 100 %$10,994 $47,420 
% Purchase48 %36 %38 %30 %
% Refinance52 %64 %62 %70 %
Call Rights

The following table provides information regarding Gain on Originated Mortgage Loans, Held-for-Sale, Net:
We hold
Three Months EndedNine Months Ended
(dollars in thousands)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Gain on originated mortgage loans, held-for-sale, net(A)(B)(C)(D)
$510,740$268,539 $1,163,702$885,730 $242,201 $277,972 
Pull through adjusted lock volume$31,731,617$20,497,057$79,135,350$44,044,241 $11,234,560 $35,091,109 
Gain on originated mortgage loans, as a percentage of pull through adjusted lock volume, by channel:
Direct to Consumer3.99 %3.83 %4.02 %4.44 %
Retail / Joint Venture3.80 %4.81 %4.02 %3.70 %
Wholesale1.04 %0.95 %1.21 %2.29 %
Correspondent0.32 %0.25 %0.30 %0.66 %
Total gain on originated mortgage loans, as a percentage of pull through adjusted lock volume1.61 %1.31 %1.47 %2.01 %
(A)Includes realized gains on loan sales and related new MSR capitalization, changes in repurchase reserves, changes in fair value of IRLCs, changes in fair value of loans held for sale and economic hedging gains and losses.
(B)Includes loan origination fees of $678.4 million and $438.9 million for the three months ended September 30, 2021 and June 30, 2021, respectively. Includes loan origination fees of $1,775.7 million and $953.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(C)Excludes $56.0 million and $18.3 million of Gain on Originated Mortgage Loans, Held-for-Sale, Net for the three months ended September 30, 2021 and June 30, 2021, respectively, related to the MSR Related Investments, Servicing, and Residential Mortgage Loans segments, as well as intercompany eliminations (Note 8 to the Consolidated Financial Statements). Excludes $93.4 million and $81.1 million of Gain on Originated Mortgage Loans, Held-for-Sale, Net for the nine months ended September 30, 2021 and 2020, respectively.
(D)Excludes mortgage servicing rights revenue on recaptured loan volume delivered back to NRM.

Total Gain on Originated Mortgage Loans, Held-for-Sale, Net increased for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. Total Gain on Originated Mortgage
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Loans, Held-for-Sale, Net increased for the nine months ended September 30, 2021 compared to the same period in 2020 primarily driven by the higher volume from all our channels.

Servicing

Our servicing business operates through our performing loan servicing division and a limited right to cleanup call options with respect to certain securitization trusts serviced or master serviced by Nationstar whereby, whenspecial servicing division, Shellpoint Mortgage Servicing (“SMS”). The performing loan servicing division services performing Agency and government-insured loans. SMS services delinquent government-insured, Agency and Non-Agency loans on behalf of the UPBowners of the underlying residential mortgage loans. During the third quarter, as part of the Caliber acquisition, we assumed Caliber’s servicing portfolio, including $156 billion of UPB of performing servicing. As of September 30, 2021, the performing loan servicing division (Newrez and Caliber) serviced $378.8 billion UPB of loans falls belowand Shellpoint Mortgage Servicing serviced $97.0 billion UPB of loans, for a pre-determined threshold, we can effectively purchase the underlying residential mortgage loans at par, plus unreimbursed servicer advances, resultingtotal servicing portfolio of $475.8 billion UPB, representing a 56% increase from June 30, 2021. Active forbearances within this portfolio continued to decline in the second quarter 2021 as our servicer continued to help homeowners and clients navigate the COVID-19 landscape. Only 1.94% of this portfolio was in active forbearance as of September 30, 2021, down from 2.46% in the quarter prior, with minimal additions in new forbearance requests during the quarter. Our servicer has continued to leverage proprietary loss mitigation technology to help homeowners move into permanent solutions such as repayment plans, deferments, and loan modifications.

The table below provides the mix of allour serviced assets portfolio between subserviced performing servicing on behalf of New Residential or its subsidiaries (labeled as “Performing Servicing”) and subserviced non-performing, or special servicing (labeled as “Special Servicing”) for third parties and delinquent loans subserviced for other New Residential subsidiaries for the periods presented.

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Unpaid Principal Balance
(in millions)September 30, 2021June 30, 2021September 30, 2020QoQ ChangeYoY Change
Performing Servicing
MSR Assets$368,716 $207,881 $185,273 $160,835 $183,443 
Residential Whole Loans9,119 6,301 2,975 2,818 6,144 
Third Party954 — — 954 954 
Total Performing Servicing378,789 214,182 188,248 164,607 190,541 
Special Servicing
MSR Assets16,450 13,866 14,566 2,584 1,884 
Residential Whole Loans5,779 1,450 7,258 4,329 (1,479)
Third Party74,814 76,409 77,131 (1,595)(2,317)
Total Special Servicing97,043 91,725 98,955 5,318 (1,912)
Total Servicing Portfolio$475,832 $305,907 $287,203 $169,925 $188,629 
Agency Servicing
MSR Assets$269,830 $157,848 $143,555 $111,982 $126,275 
Residential Whole Loans— — — — — 
Third Party12,319 13,155 19,216 (836)(6,897)
Total Agency Servicing282,149 171,003 162,771 111,146 119,378 
Government-insured Servicing
MSR Assets105,976 58,604 55,894 47,372 50,082 
Residential Whole Loans— — — — — 
Third Party— — 1,342 — (1,342)
Total Government Servicing105,976 58,604 57,236 47,372 48,740 
Non-Agency (Private Label) Servicing
MSR Assets9,360 5,295 390 4,065 8,970 
Residential Whole Loans14,898 7,751 10,233 7,147 4,665 
Third Party63,449 63,254 56,573 195 6,876 
Total Non-Agency (Private Label) Servicing87,707 76,300 67,196 11,407 20,511 
Total Servicing Portfolio$475,832 $305,907 $287,203 $169,925 $188,629 
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Three Months EndedNine Months Ended
(in thousands)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Base Servicing Fees
MSR Assets$174,220 $143,999 $477,020 $258,311 $30,221 $218,709 
Residential Whole Loans11,281 1,163 13,518 10,938 10,118 2,580 
Third Party24,245 25,408 77,051 83,468 (1,163)(6,417)
Total Base Servicing Fees$209,746 $170,570 $567,589 $352,717 $39,176 $214,872 
Other Fees
Incentive fees$23,698 $20,349 $64,296 $29,565 $3,349 $34,731 
Ancillary fees14,822 11,519 37,330 30,623 3,303 6,707 
Boarding fees2,425 2,510 6,872 8,580 (85)(1,708)
Other fees6,829 7,516 20,056 11,475 (687)8,581 
Total Other Fees(A)
$47,774 $41,894 $128,554 $80,243 $5,880 $48,311 
Total Servicing Fees$257,520 $212,464 $696,143 $432,960 $45,056 $263,183 
(A)Includes other fees earned from third parties of $14.9 million and $15.4 million for the three months ended September 30, 2021 and June 30, 2021, respectively, and $46.6 million and $55.1 million for the nine months ended September 30, 2021 and 2020, respectively.

MSR Related Investments

MSRs and MSR Financing Receivables

As of September 30, 2021, we had $6.6 billion carrying value of MSRs and MSR Financing Receivables. As of September 30, 2021, our Full and Excess MSR portfolio increased to $635 billion UPB from $536 billion UPB as of December 31, 2020. Full MSRs as of September 30, 2021 increased to $550 billion from $435 billion UPB as of December 31, 2020. Excess MSRs as of September 30, 2021 decreased to $85 billion UPB from $101 billion as of December 31, 2020. The increase in portfolio size during the periods presented was predominantly a result of the outstanding securitizationCaliber acquisition and MSRs retained from originations offset by prepayments.

We finance our MSRs and MSR financing at par, in exchangereceivables with short- and medium-term bank and public capital markets notes. These borrowings are primarily recourse debt and bear both fixed and variable interest rates offered by the counterparty for the term of the notes of a fee of 0.75% of UPB paidspecified margin over LIBOR. The capital markets notes are typically issued with a collateral coverage percentage, which is a quotient expressed as a percentage equal to Nationstar at the time of exercise. We similarly hold a limited right to cleanup call options with respect to certain securitization trusts master servicedaggregate note amount divided by SLS for no fee, and also with respect to certain securitization trusts serviced or master serviced by Ocwen subject to a fee of 0.5% of UPB on loans that are current or thirty (30) days or less delinquent, paid to Ocwen at the time of exercise. The aggregate UPBmarket value of the underlying residential mortgage loans within these various securitization trustscollateral. The market value of the underlying collateral is approximately $155.0 billion.

We continue to evaluategenerally updated on a quarterly basis and if the call rights we acquired from each of our servicers, and our ability to exercise such rights and realize the benefits therefrom are subjectcollateral coverage percentage becomes greater than or equal to a number of risks. See “Risk Factors—Risks Related to Our Business—Our ability to exercise our cleanup call rightscollateral trigger, generally 90%, we may be limited or delayed if a third party also possessing such cleanup call rights exercises such rights, if the related securitization trustee refusesrequired to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.” The actual UPB of the residential mortgage loans on which we can successfully exercise call rights and realize the benefits therefrom may differ materially from our initial assumptions.

We have exercised our 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, we sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, we received paradd funds, pay down principal on the securities issued bynotes, or add additional collateral to bring the called trusts which we owned priorcollateral coverage percentage below 90%. The difference between the collateral coverage percentage and the collateral trigger is referred to such trusts’ termination. Referas a “margin holiday.”

See Note 11 to Note 8 in our Condensed Consolidated Financial Statements for further detailsinformation regarding financing of our MSRs and MSR Financing Receivables.

We have contracted with certain subservicers and, in relation to certain MSR purchases, interim subservicers, to perform the related servicing duties on the residential mortgage loans underlying our MSRs. As of September 30, 2021, these transactions.subservicers include PHH, Mr. Cooper, LoanCare, and Flagstar, which subservice 10.8%, 9.9%, 8.9% and 0.4% of the underlying UPB of the related mortgages, respectively (includes both MSRs and MSR Financing Receivables).The remaining 70.0% of the underlying UPB of the related mortgages is subserviced by Newrez and Caliber (Note 1 to our Consolidated Financial Statements).


We are generally obligated to fund all future servicer advances related to the underlying pools of mortgage loans on our MSRs and MSR Financing Receivables. Generally, we will advance funds when the borrower fails to meet, including forbearances, contractual payments (e.g. principal, interest, property taxes, insurance). We will also advance funds to maintain and report foreclosed real estate properties on behalf of investors. Advances are recovered through claims to the related investor and subservicers. Pursuant to our servicing agreements, we are obligated to make certain advances on mortgage loans to be in
75

compliance with applicable requirements. In certain instances, the subservicer is required to reimburse us for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract.

We finance our servicer advances with short- and medium-term collateralized borrowings. These borrowings are non-recourse committed facilities that are not subject to margin calls and bear both fixed and variable interest rates offered by the counterparty for the term of the notes, generally less than one year, of a specified margin over LIBOR. See Note 11 to our Consolidated Financial Statements for further information regarding financing of our servicer advances.

See Note 5 to our Consolidated Financial Statements for further information regarding our MSR Financing Receivables.

The table below summarizes our MSRs and MSR Financing Receivables as of September 30, 2021.
(dollars in millions)Current UPBWeighted Average MSR (bps)Carrying Value
GSE$374,945.6 28 bps$4,273.4 
Non-Agency68,903.6 48 966.1 
Ginnie Mae105,975.4 39 1,325.8 
Total$549,824.6 33 bps$6,565.3 

The following table summarizes the collateral characteristics of the loans underlying our MSRs and MSR Financing Receivables as of September 30, 2021 (dollars in thousands):
Collateral Characteristics
Current Carrying AmountCurrent Principal BalanceNumber of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
GSE$4,273,376 $374,945,577 2,156,647 754 3.7 %279 51 1.8 %23.0 %22.9 %0.1 %19.4 %
Non-Agency966,051 68,903,562 575,219 639 4.3 %293 180 10.9 %13.3 %12.0 %1.5 %4.0 %
Ginnie Mae1,325,840 105,975,422 492,986 698 3.3 %333 24 0.9 %23.0 %22.8 %0.1 %22.3 %
Total$6,565,267 $549,824,561 3,224,852 729 3.7 %291 62 2.7 %21.8 %21.5 %0.3 %18.1 %

Collateral Characteristics
Delinquency 30 Days(F)
Delinquency 60 Days(F)
Delinquency 90+ Days(F)
Loans in ForeclosureReal Estate OwnedLoans in Bankruptcy
GSE0.8 %0.2 %1.9 %0.3 %— %0.2 %
Non-Agency6.5 %2.0 %5.1 %5.5 %0.9 %2.3 %
Ginnie Mae2.2 %0.7 %3.2 %0.3 %— %0.4 %
Total1.8 %0.5 %2.5 %0.9 %0.1 %0.5 %
(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.

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Excess MSRs
The tables below summarize the terms of our Excess MSRs:

Summary of Direct Excess MSRs as of September 30, 2021
MSR Component(A)
Excess MSR
Current UPB
(billions)		Weighted Average MSR (bps)Weighted Average Excess MSR (bps)Interest in Excess MSR (%)Carrying Value (millions)
Agency$28.4 29 bps21 bps32.5% - 66.7%$139.3 
Non-Agency(B)
32.2 35 15 33.3% - 100%130.9 
Total/Weighted Average$60.6 32 bps18 bps$270.2 
(A)The MSR is a weighted average as of September 30, 2021, 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 6 to our Consolidated Financial Statements) on $21.6 billion UPB underlying these Excess MSRs.

Summary of Excess MSRs Through Equity Method Investees as of September 30, 2021
MSR Component(A)
Current UPB (billions)Weighted Average MSR (bps)Weighted Average Excess MSR (bps)New Residential Interest in Investee (%)Investee Interest in Excess MSR (%)New Residential Effective Ownership (%)Investee Carrying Value (millions)
Agency$24.2 31 bps21 bps50.0 %66.7 %33.3 %$158.9 
Total/Weighted Average$24.2 31 bps21 bps$158.9 
(A)The MSR is a weighted average as of September 30, 2021, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

The following table summarizes the collateral characteristics of the loans underlying our direct Excess MSRs as of September 30, 2021 (dollars in thousands):
Collateral Characteristics
Current Carrying AmountCurrent Principal BalanceNumber of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
Agency
Original Pools$82,307 $17,923,229 150,628 731 4.5 %227 141 1.5 %26.2 %24.8 %1.9 %22.4 %
Recaptured Loans56,982 10,495,764 66,048 736 3.9 %262 49 — %25.5 %24.6 %1.2 %38.5 %
$139,289 $28,418,993 216,676 733 4.3 %241 105 0.9 %26.0 %24.7 %1.6 %28.4 %
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools$106,967 $28,581,082 166,746 680 4.2 %269 186 8.7 %18.7 %16.8 %2.2 %14.6 %
Recaptured Loans23,924 3,598,781 17,255 743 3.7 %273 30 — %25.4 %25.5 %— %40.1 %
$130,891 $32,179,863 184,001 687 4.2 %269 169 7.1 %19.3 %17.6 %2.0 %18.2 %
Total/Weighted Average(H)
$270,180 $60,598,856 400,677 708 4.2 %256 140 3.9 %22.4 %20.9 %1.9 %23.7 %
77

Collateral Characteristics
DelinquencyLoans in
Foreclosure		Real
Estate
Owned		Loans in
Bankruptcy
30 Days(G)
60 Days(G)
90+ Days(G)
Agency
Original Pools1.8 %0.5 %4.6 %0.5 %0.1 %0.1 %
Recaptured Loans1.2 %0.3 %3.7 %0.1 %— %— %
1.5 %0.4 %4.3 %0.4 %0.1 %0.1 %
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools10.8 %6.2 %4.7 %5.5 %0.3 %1.3 %
Recaptured Loans1.4 %0.2 %2.1 %0.1 %— %— %
9.8 %5.5 %4.4 %4.9 %0.3 %1.2 %
Total/Weighted Average(H)
6.0 %3.2 %4.3 %2.8 %0.2 %0.7 %
(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 6 to our Consolidated Financial Statements) on $21.6 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.

The following table summarizes the collateral characteristics as of September 30, 2021 of the loans underlying Excess MSRs made through joint ventures accounted for as equity method investees (dollars in thousands). For each of these pools, we own a 50% interest in an entity that invested in a 66.7% interest in the Excess MSRs.

Collateral Characteristics
Current Carrying AmountCurrent
Principal
 Balance		New Residential Effective Ownership
(%)		Number
of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan
Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
Agency 
Original Pools$92,577 $12,590,174 33.3 %139,932 715 5.1 %218 160 1.2 %25.2 %22.3 %3.6 %25.3 %
Recaptured Loans66,339 11,640,552 33.3 %88,610 721 4.0 %258 58 — %26.3 %24.3 %3.0 %44.4 %
Total/Weighted Average(G)
$158,916 $24,230,726 228,542 718 4.6 %237 111 1.2 %25.9 %23.3 %3.3 %34.9 %

Collateral Characteristics
DelinquencyLoans in
Foreclosure		Real
Estate
Owned		Loans in
Bankruptcy
30 Days(F)
60 Days(F)
90+ Days(F)
Agency
Original Pools2.5 %0.6 %4.3 %0.7 %0.1 %0.1 %
Recaptured Loans1.6 %0.4 %4.1 %0.1 %— %0.1 %
Total/Weighted Average(G)
2.1 %0.5 %4.2 %0.5 %0.1 %0.1 %
(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.
78

(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.

Servicer Advance Investments

The following is a summary of our Servicer Advance Investments, including the right to the basic fee component of the related MSRs (dollars in thousands):
September 30, 2021
Amortized Cost Basis
Carrying Value(A)
UPB of Underlying Residential Mortgage LoansOutstanding Servicer AdvancesServicer Advances to UPB of Underlying Residential Mortgage Loans
Servicer advance investments
Mr. Cooper and SLS serviced pools$453,442 $472,004 $21,568,182 $408,085 1.9 %
(A)Carrying value represents the fair value of the Servicer advance investments, including the basic fee component of the related MSRs.

The following is additional information regarding our Servicer advance investments, and related financing, as of and for the nine months ended September 30, 2021 (dollars in thousands):
Nine Months Ended
September 30, 2021
Loan-to-Value (“LTV”)(A)
Cost of Funds(B)
Weighted Average Discount Rate
Weighted Average Life (Years)(C)
Change in Fair Value Recorded in Other IncomeFace Amount of Secured Notes and Bonds PayableGross
Net(D)
GrossNet
Servicer advance
    investments(E)
5.2 %6.0$(6,535)$381,286 89.4 %95.1 %1.3 %1.2 %
(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:
September 30, 2021
Principal and interest advances$75,564 
Escrow advances (taxes and insurance advances)170,817 
Foreclosure advances161,704 
Total$408,085 

MSR Related Services Businesses

Our MSR related investments segment also includes the activity from several wholly-owned subsidiaries or minority investments in companies that perform various services in the mortgage and real estate industries. Our subsidiary Guardian is a national provider of field services and property management services. We also made a strategic minority investment in Covius,
79

a provider of various technology-enabled services to the mortgage and real estate industries. As of September 30, 2021, our ownership interest in Covius is 24.3%.

Residential Mortgage Loans

During the third quarter of 2020, New Residential formed several entities that separately issued securitized debt collateralized by non-performing and reperforming residential mortgage loans. New Residential determined that these securitizations should be evaluated for consolidation under the VIE model rather than the voting interest entity model as the equity holders as a group lack the characteristics of a controlling financial interest. Under the VIE model, New Residential’s consolidated subsidiaries had both 1) the power to direct the most significant activities of the securitizations and 2) significant variable interests in each
55
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
of the securitizations, through their control of the related optional redemption feature and their ownership of certain notes issued by the securitizations and, therefore, met the primary beneficiary criterion and, accordingly, the Company consolidated the securitizations. As of September 30, 2021, only one securitization (the “RPL Securitization Trust”) remains outstanding.

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

In May 2021, Newrez issued $750.0 million in notes through a securitization facility (the “2021-1 Securitization Facility”) that bear interest at 30-day LIBOR plus a margin. The 2021-1 Securitization Facility is secured by newly originated, first-lien, fixed- and adjustable-rate residential mortgage loans eligible for purchase by the GSEs and Ginnie Mae. Through a master repurchase agreement, Newrez sells its originated loans to the 2021-1 Securitization Facility, which then issues notes to third party qualified investors, with Newrez retaining the trust certificate. The loans serve as collateral with the proceeds from the note issuance ultimately financing the originations. The 2021-1 Securitization Facility will terminate on the earlier of (i) the three-year anniversary of the initial closing date, (ii) the Company exercising its right to optional prepayment in full, or (iii) a repurchase triggering event. The Company determined it is the primary beneficiary of the 2021-1 Securitization Facility as it has both (i) the power to direct the activities of a VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

Caliber Mortgage Participant I, LLC was formed to acquire, receive, participate, hold, release, and dispose of participation interests in certain of Caliber’s mortgage loans held for sale (“MLHFS PC”). The Caliber Mortgage Participant I, LLC transfers the MLHFS PC in exchange for cash. Caliber is the primary beneficiary of the VIE and therefore, consolidates the SPE. The transferred MLHFS PC is classified on the Consolidated Balance Sheets as Residential Mortgage Loans, Held-for-Sale and the related warehouse credit facility liabilities as part of Secured Financing Agreements. Caliber retains the risks and benefits associated with the assets transferred to the SPEs.

Caliber remains the servicer of the underlying mortgage loans and has the power to direct the SPE’s activities. Holders of the term notes issued by the Trust can look only to the assets of the Trust for satisfaction of the debt and have no recourse against Caliber.
Consumer Loan Companies

New Residential has a co-investment in a portfolio of consumer loans held through the Consumer Loan Companies. As of September 30, 2021, New Residential owns 53.5% of the limited liability company interests in, and consolidates, the Consumer Loan Companies.

On September 25, 2020, certain entities comprising the Consumer Loan Companies, in a private transaction, issued $663.0 million of asset-backed notes (“SCFT 2020-A”) securitized by a portfolio of consumer loans.

The Consumer Loan Companies consolidate certain entities that issued securitized 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.

MSR Financing Facilities

CHL GMSR Issuer Trust is an SPE created for the purpose of transferring a participation certificate (“MSR PC”) representing a beneficial interest in Caliber’s GNMA MSRs in exchange for a variable funding note (“MSR Financing VFN”) and a trust certificate with Caliber, as well for the issuance of term notes in exchange for cash. Caliber consolidates this SPE because it is the primary beneficiary of the VIE. The MSR PC is classified in Mortgage Servicing Rights and MSR Financing Receivables, at Fair Value and the MSR Financing VFN and term notes are classified as Secured Notes and Bonds Payable on the Consolidated Balance Sheets. The SPE uses collections from a specified portion of GNMA MSR net service fees collected to repay principal and interest and to pay the expenses of the entity.

56
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Additionally, Caliber has also transferred a participation certificate representing a beneficial interest certain of Caliber’s GNMA servicer advances (“Servicer Advance PC”) to CHL GMSR Issuer Trust in exchange for a VFN (“Servicer Advance VFN”). The transferred Servicer Advance PC is classified on the Consolidated Balance Sheets as Servicing Advances Receivable and the related liabilities as part of Accrued Expenses and Other Liabilities. CHL GMSR Issuer Trust uses collections of the pledged advances to repay principal and interest and to pay the expenses of the Servicer Advance VFN.

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on the Consolidated Balance Sheets:
The BuyerShelter Joint VenturesResidential Mortgage LoansConsumer Loan SPVsMSR Financing FacilitiesTotal
September 30, 2021
Assets
Mortgage servicing rights, at fair value$— $— $— $— $352,144 $352,144 
Servicer advance investments, at fair value459,812 — — — — 459,812 
Residential mortgage loans, held-for-investment, at fair value— — 98,373 — — 98,373 
Residential mortgage loans, held-for-sale— — 1,856 — — 1,856 
Residential mortgage loans, held-for-sale, at fair value— — 1,191,416 — — 1,191,416 
Consumer loans, held-for-investment, at fair value— — — 547,598 — 547,598 
Cash and cash equivalents37,138 37,339 2,102 — — 76,579 
Restricted cash2,377 — 170 7,430 — 9,977 
Other assets9 1,825 4,545 7,349 361,238 374,966 
Total Assets$499,336 $39,164 $1,298,462 $562,377 $713,382 $3,112,721 
Liabilities
Secured financing agreements(A)
$— $— $133,227 $— $— $133,227 
Secured notes and bonds payable(A)
374,025 — 1,048,821 497,346 367,871 2,288,063 
Accrued expenses and other liabilities925 6,570 13,848 886 106 22,335 
Total Liabilities$374,950 $6,570 $1,195,896 $498,232 $367,977 $2,443,625 
December 31, 2020
Assets
Servicer advance investments, at fair value$522,901 $— $— $— $— $522,901 
Residential mortgage loans, held-for-investment, at fair value— — 358,629 — — 358,629 
Residential mortgage loans, held-for-sale— — 346,250 — — 346,250 
Residential mortgage loans, held-for-sale, at fair value— — 614,868 — — 614,868 
Consumer loans, held-for-investment— — — 682,932 — 682,932 
Cash and cash equivalents53,012 39,031 — — — 92,043 
Restricted cash2,808 — — 8,090 — 10,898 
Other assets891 9,151 30,621 9,201 — 49,864 
Total Assets$579,612 $48,182 $1,350,368 $700,223 $— $2,678,385 
Liabilities
Secured notes and bonds payable(A)
$414,576 $— $1,034,093 $628,759 $— $2,077,428 
Accrued expenses and other liabilities1,092 9,455 1,661 764 — 12,972 
Total Liabilities$415,668 $9,455 $1,035,754 $629,523 $— $2,090,400 
(A)The creditors of the VIEs do not have recourse to the general credit of New Residential, and the assets of the VIEs are not directly available to satisfy New Residential’s obligations.

57
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Non-Consolidated VIEs

The following table comprises bonds held in unconsolidated VIEs and retained pursuant to required risk retention regulations:
As of and for the
Nine Months Ended
September 30,
20212020
Residential mortgage loan UPB$11,403,079 $14,779,498 
Weighted average delinquency(A)
4.70 %3.15 %
Net credit losses$118,958 $28,874 
Face amount of debt held by third parties(B)
$10,475,990 $12,817,104 
Carrying value of bonds retained by New Residential(C)(D)
$965,846 $1,692,841 
Cash flows received by New Residential on these bonds$260,306 $151,852 
(A)Represents the percentage of the UPB that is 60+ days delinquent.
(B)Excludes bonds retained by New Residential.
(C)Includes bonds retained pursuant to required risk retention regulations.
(D)Classified within Level 3 of the fair value hierarchy as the valuation is based on certain unobservable inputs including discount rate, prepayment rates and loss severity. See Note 12 for details on unobservable inputs.

Noncontrolling Interests

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

Others’ interests in the equity of consolidated subsidiaries is computed as follows:
September 30, 2021December 31, 2020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Total consolidated equity$124,386 $32,594 $88,312 $163,944 $38,727 $96,418 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.1 %46.5 %
Others’ interest in equity of consolidated subsidiary$13,283 $16,134 $41,606 $43,882 $19,402 $45,384 

Others’ interests in the net income (loss) is computed as follows:
Three Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(2,614)$6,125 $13,438 $9,761 $9,649 $9,006 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(280)$3,032 $6,249 $2,612 $4,840 $4,188 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

58
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Nine Months Ended September 30,
20212020
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
The Buyer(A)
Shelter Joint VenturesConsumer Loan Companies
Net income (loss)$(4,546)$19,762 $41,855 $(162)$21,017 $50,795 
Others’ ownership interest10.7 %49.5 %46.5 %26.8 %50.2 %46.5 %
Others’ interest in net income of consolidated subsidiary$(797)$9,782 $19,463 $(44)$10,542 $23,620 
(A)New Residential owned 89.3% and 73.2% of the Buyer as of September 30, 2021 and 2020, respectively. See Note 11 regarding the financing of Servicer Advance Investments.

14.    EQUITY AND EARNINGS PER SHARE
Equity and Dividends

On February 11, 2020, the Company priced its underwritten public offering of 14,000,000 of its 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $389.5 million. The offering closed on February 14, 2020. In connection with the offering, the underwriters exercised an option to purchase up to an additional 2,100,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.6 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $1.0 million as of the grant date.

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

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

On May 19, 2021, 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”). No share issuances were made during the three months ended September 30, 2021.

On September 14, 2021, the Company priced its underwritten public offering of 17,000,000 of its 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, New Residential granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for New Residential, the Company granted options to the Manager relating to approximately 1.9 million shares of New Residential’s common stock at $10.89 per share.

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series. The table below summarizes preferred stock:
59
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
Dividends Declared per Share
Number of SharesThree Months Ended
September 30,		Nine Months Ended
September 30,
SeriesSeptember 30, 2021December 31, 2020
Liquidation Preference(A)
Issuance Discount
Carrying Value(B)
2021202020212020
Series A, 7.50% issued July 2019(C)
6,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 $1.41 $1.41 
Series B, 7.125% issued August 2019(C)
11,300 11,300 282,500 3.15 %273,418 0.45 0.45 1.34 1.34 
Series C, 6.375% issued February 2020(C)
16,100 16,100 402,500 3.15 %389,548 0.40 0.40 1.20 1.20 
Series D, 7.00%, issued September 2021(D)
18,600 — 465,000 3.15 %449,506 0.28 — 0.28 — 
Total52,210 33,610 $1,305,250 $1,262,498 $1.60 $1.32 $4.23 $3.95 
(A)Each series has a liquidation preference or par value of $25.00 per share.
(B)Carrying value reflects par value less discount and issuance costs.
(C)Fixed-to-floating rate cumulative redeemable preferred.
(D)Fixed-rate reset cumulative redeemable preferred.

On September 22, 2021, New Residential’s board of directors declared third quarter 2021 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, $0.40 per share of Preferred Series C, and $0.28 per share of Preferred Series D or $2.9 million, $5.0 million, $6.4 million, and $1.2 million, respectively.

Common dividends have been declared as follows:
Declaration DatePayment DatePer ShareTotal Amounts Distributed (millions)
Quarterly Dividend
March 31, 2020April 2020$0.05 $20.8 
June 22, 2020July 20200.10 41.6 
September 23, 2020October 20200.15 62.4 
December 16, 2020January 20210.20 82.9 
March 24, 2021April 20210.20 82.9 
June 16, 2021August 20210.20 93.3 
August 23, 2021October 20210.25 116.6 

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at September 30, 2021.

Common Stock Purchase Warrants

During the second quarter of 2020, the Company issued warrants (the “2020 Warrants”) in conjunction with the issuance of a term loan, which was fully repaid in the third quarter of 2020, that provide the holders the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution adjustments): approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share.

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

60
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The table below summarizes the 2020 Warrants at September 30, 2021:
Number of Warrants
(in millions)		Weighted Average Exercise Price
(per share)
Outstanding warrants - December 31, 202043.4 $6.79 
Granted— — 
Exercised— — 
Expired— — 
Outstanding warrants - September 30, 202143.4 6.58 (A)
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

Option Plan

As of September 30, 2017,2021, outstanding options were as follows:
Held by the Manager18,700,175 
Issued to the Manager and subsequently assigned to certain of the Manager’s employees2,753,980 
Issued to the independent directors6,000 
Total21,460,155 

The following table summarizes outstanding options as of September 30, 2021. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended September 30, 2021 was $11.00 per share.
Recipient
Date of
Grant/
Exercise(A)
Number of Unexercised
Options
Options
Exercisable
as of
September 30, 2021
Weighted
Average
Exercise
Price(B)
Intrinsic Value of Exercisable Options as of
September 30, 2021
(millions)
DirectorsVarious6,000 6,000 $13.46 $— 
Manager(C)
20171,130,916 1,130,916 13.78 — 
Manager(C)
20185,320,000 5,320,000 16.50 — 
Manager(C)
20196,351,000 6,000,800 15.93 — 
Manager(C)
20201,619,739 1,025,835 17.23 — 
Manager(C)
20217,032,500 862,083 10.10 0.78
Outstanding21,460,155 14,345,634 
(A)Options expire on the tenth anniversary from date of grant.
(B)The exercise prices are subject to adjustment in connection with return of capital dividends.
(C)The Manager assigned certain of its options to its employees as follows:
Date of Grant to ManagerRange of Exercise
Prices		Total Unexercised
Inception to Date
2018$16.37 to $17.841,159,833 
2019$14.96 to $16.501,270,200 
2020$16.84 to $17.23323,947 
Total2,753,980 
61
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
The following table summarizes activity in outstanding options:
AmountWeighted Average Exercise Price
Outstanding options - December 31, 202014,428,655 
Granted7,032,500 $10.31 
Exercised— — 
Expired(1,000)12.36 
Outstanding options - September 30, 202121,460,155 See table above

Earnings Per Share

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

The following table summarizes the basic and diluted earnings per share calculations:
Three Months Ended
September 30, 2021		Nine Months Ended
September 30,
2021202020212020
Net income (loss)$170,681 $103,920 $617,743 $(1,459,206)
Noncontrolling interests in income of consolidated subsidiaries9,001 11,640 28,448 34,118 
Dividends on preferred stock15,533 14,359 44,249 39,938 
Net income (loss) attributable to common stockholders$146,147 $77,921 $545,046 $(1,533,262)
Basic weighted average shares of common stock outstanding466,579,920 415,744,518 446,085,657 415,665,441 
Dilutive effect of stock options and common stock purchase warrants(A)
15,702,775 5,224,108 15,608,824 — 
Diluted weighted average shares of common stock outstanding482,282,695 420,968,626 461,694,481 415,665,441 
Basic earnings per share attributable to common stockholders$0.31 $0.19 $1.22 $(3.69)
Diluted earnings per share attributable to common stockholders$0.30 $0.19 $1.18 $(3.69)
(A)Stock options and common stock purchase warrants that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share for the periods where a loss has been recorded because they would have been anti-dilutive for the period presented.

The Company excluded the following weighted-average potential common shares from the calculation of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:
Three Months Ended
September 30, 2021		Nine Months Ended
September 30,
2021202020212020
Stock options and common stock purchase warrants— — — 5,966,141 




62
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
15. COMMITMENTS AND CONTINGENCIES
Litigation — New Residential is or may become, from time to time, involved in various disputes, litigation and regulatory inquiry and investigation matters that arise in the ordinary course of business. Given the inherent unpredictability of these types of proceedings, it is possible that future adverse outcomes could have a material adverse effect on its business, financial position or results of operations. New Residential is not aware of any unasserted claims that it believes are material and probable of assertion where the risk of loss is expected to be reasonably possible.

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

Indemnifications — In the normal course of business, New Residential and its subsidiaries enter into contracts that contain a variety of representations and warranties and that provide general indemnifications. New Residential’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against New Residential that have not yet occurred. However, based on its experience, New Residential expects the risk of material loss to be remote.
Capital Commitments — As of September 30, 2021, New Residential had outstanding capital commitments related to investments in the following investment types (also refer to Note 5 for MSR investment commitments and to Note 18 for additional capital commitments entered into subsequent to September 30, 2021, if any):

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

•Mortgage Origination Reserves — Newrez and Caliber, both wholly-owned subsidiaries of New Residential, currently originate, or have in the past originated, conventional, government-insured and nonconforming residential mortgage loans for sale and securitization. The GSEs or Ginnie Mae guarantee conventional and government insured mortgage securitizations and mortgage investors issue nonconforming private label mortgage securitizations while Newrez and Caliber respectively generally retain the right to service the underlying residential mortgage loans. In connection with the transfer of loans to the GSEs or mortgage investors, Newrez and Caliber respectively make 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 and Caliber respectively generally have an obligation to cure the breach. If Newrez and Caliber respectively are unable to cure the breach, the purchaser may require Newrez or Caliber, as applicable, to repurchase the loan.

In addition, as issuers of Ginnie Mae guaranteed securitizations, Newrez and Caliber each hold the right to repurchase loans that are at least 90 days’ delinquent from the securitizations at their discretion. Loans in forbearance that are three or more consecutive payments delinquent are included as delinquent loans permitted to be repurchased. While Newrez and Caliber are not obligated to repurchase the delinquent loans, Newrez and Caliber generally exercise their respective options to repurchase loans that will result in an economic benefit. As of September 30, 2021, New Residential’s estimated liability associated with representations and warranties and Ginnie Mae repurchases was $36.8 million and $1.8 billion, respectively. See Note 5 for information on regarding the right to repurchase delinquent loans from Ginnie Mae securities and mortgage origination.

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

63
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
•Consumer Loans — The Consumer Loan Companies have invested in loans with an aggregate of $250.1 million of unfunded and available revolving credit privileges as of September 30, 2021. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at New Residential’s discretion.

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

New Residential, through its wholly-owned subsidiaries, has leases on office space expiring through 2033. Rent expense, net of sublease income for the three months ended September 30, 2021 and 2020 totaled $7.0 million and $3.4 million, respectively, and $14.0 million and $10.5 million for the nine months ended September 30, 2021 and 2020, respectively. The Company has leases that include renewal options and escalation clauses. The terms of the leases do not impose any financial restrictions or covenants.

As of September 30, 2021, future commitments under the non-cancelable leases are as follows:
Year EndingAmount
October 1 through December 31, 2021$11,649 
202239,173 
202327,181 
202420,032 
202515,687 
2026 and thereafter40,721 
Total remaining undiscounted lease payments154,443 
Less: imputed interest14,005 
Total remaining discounted lease payments$140,438 

The future commitments under the non-cancelable leases have not been reduced by the sublease rentals of $1.6 million due in the future periods.

Other information related to operating leases is summarized below:
September 30, 2021December 31, 2020
Weighted-average remaining lease term (years)5.63.2
Weighted-average discount rate3.7 %4.5 %

Environmental Costs — As a residential real estate owner, New Residential is subject to potential environmental costs. At September 30, 2021, New Residential is not aware of any environmental concerns that would have a material adverse effect on its consolidated financial position or results of operations.

Debt Covenants — Certain of the Company’s debt obligations are subject to loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in New Residential’s equity or a failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. Refer to Note 11.
Certain Tax-Related Covenants — If New Residential is treated as a successor to Drive Shack Inc. (“Drive Shack”) under applicable U.S. federal income tax rules, and if Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2014, New Residential could be prohibited from electing to be a REIT. Accordingly, in the separation and distribution agreement executed in connection with New Residential’s spin-off from Drive Shack, Drive Shack (i) represented that it had no knowledge of any fact or circumstance that would cause New Residential to fail to qualify as a REIT, (ii) covenanted to use commercially reasonable efforts to cooperate with New Residential as necessary to enable New Residential to qualify for taxation as a REIT and receive customary legal opinions concerning REIT status, including providing information and representations to New Residential and its tax counsel with respect to the composition of Drive Shack’s income and assets, the composition of its stockholders, and its operation as a REIT; and (iii) covenanted to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before December 31, 2014 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the U.S. Internal Revenue Service
64
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
(“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.

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

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

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

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

In March 2020, the Company and certain of its subsidiaries sold (collectively, the “Sale”) through a broker-dealer to 6 purchasers (collectively, “the Purchasers”) of a portfolio consisting of non-agency residential mortgage-backed securities with an aggregate face value of approximately $6.1 billion (the “Securities”). The Sale generated proceeds of approximately $3.3 billion in the aggregate, excluding any unpaid but accrued interest. The Purchasers included an entity affiliated with funds managed by an affiliate of the Manager (the “Fortress Purchaser”), which purchased approximately $1.85 billion of Securities in aggregate face value for approximately $1.0 billion. In connection with the sale of the Securities to the Fortress Purchaser, the Company agreed to exercise certain rights, including call rights, that the Company holds under the securitization
65
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
transactions with respect to the Securities sold to the Fortress Purchaser solely upon written direction by the Fortress Purchaser. Such rights include the rights, if any, to (i) amend and/or terminate the transactions contemplated by certain related residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements, (ii) acquire certain of the related residential mortgage loans, real estate owned and certain other assets in the trust subject to such residential mortgage servicing agreements, securitization trust agreements, pooling and servicing agreements or other agreements in connection with such amendment or termination against delivery of the applicable termination payment, and (iii) if applicable, direct certain related servicers, holders of subordinate securities and/or other applicable parties, to exercise the rights in (i) and (ii). Pursuant to such agreement, the Company and the Fortress Purchaser would share equally in any profits or losses arising from the exercise of any such rights, other than if the Company elects not to participate in the related transaction, in which case the Fortress Purchaser would realize all of the profits and bear all of the losses with respect thereto. 

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

On June 30, 2021, the Company entered into a senior credit agreement and a senior subordinated credit agreement whereby the Company, and the other lenders party thereto, made term loans to an entity affiliated with funds managed by an affiliate of the Manager. The senior loan bears cash interest at a fixed rate equal to 10.5% per annum and the senior subordinated loan bears paid-in-kind interest at a rate equal to 16.0% per annum, subject to certain adjustments as set forth in the respective credit agreements. As of September 30, 2021, the principal balance of the Company’s portion of the senior loan and the senior subordinated loan was $181.3 million and $52.0 million, respectively.

Due to affiliates consists of the following:
September 30, 2021December 31, 2020
Management fees$8,265 $7,478 
Expense reimbursements and other630 1,972 
Total$8,895 $9,450 
Affiliate expenses and fees consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Management fees$24,315 $22,482 $70,154 $66,682 
Expense reimbursements(A)
125 125 375 375 
Total$24,440 $22,607 $70,529 $67,057 
(A)Included in General and administrative expenses in the Consolidated Statements of Income.
See Note 4 regarding co-investments with Fortress-managed funds.

See Note 14 regarding options granted to the Manager.

66
NEW RESIDENTIAL INVESTMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in tables in thousands, except share and per share data) 
17.    INCOME TAXES
Income tax expense (benefit) consists of the following:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Current:
Federal$2,813 $— $6,932 $(7,877)
State and local1,415 1,438 2,283 1,496 
Total current income tax expense (benefit)4,228 1,438 9,215 (6,381)
Deferred:
Federal23,690 77,300 100,842 (29,921)
State and local3,641 22,074 18,684 (12,345)
Total deferred income tax expense (benefit)27,331 99,374 119,526 (42,266)
Total income tax expense (benefit)$31,559 $100,812 $128,741 $(48,647)
New Residential intends to qualify as a REIT for each of its tax years through December 31, 2021. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.
New Residential operates various business segments, including servicing, origination, and MSR related investments, through taxable REIT subsidiaries (“TRSs”) that are subject to regular corporate income taxes, which have been provided for in the provision for income taxes, as applicable. Refer to Note 3 for further details.

As of September 30, 2021, New Residential recorded a net deferred tax liability of $407.6 million, including $280.0 million of deferred tax liability recorded as part of the purchase price allocation related to the Caliber acquisition (Note 1). The deferred tax liability of $407.6 million is primarily composed of deferred tax liabilities generated through the deferral of gains from loans sold by the origination business and changes in fair value of MSRs, loans, and swaps held within taxable entities.

18.    SUBSEQUENT EVENTS
These financial statements include a discussion of material events that have occurred subsequent to September 30, 2021 through the issuance of these Consolidated Financial Statements. Events subsequent to that date have not been considered in these financial statements.

Subsequent to September 30, 2021, New Residential announced that it had entered into a definitive agreement with affiliates of The Goldman Sachs Group, Inc. to acquire Genesis Capital LLC (“Genesis”), a leading business purpose lender that provides innovative solutions to developers of new construction, fix and flip and rental hold projects, and acquire a related portfolio of loans. The acquisition of Genesis is expected to close in the fourth quarter of 2021, subject to certain approvals and customary closing conditions.




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

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

As permitted by SEC Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, this section discusses our results of operations for the current quarter ended September 30, 2021 compared to the immediately preceding prior quarter ended June 30, 2021.
GENERAL
New Residential is a publicly traded REIT primarily focused on opportunistically investing in, and actively managing, investments related to the residential real estate market. We seek to generate long-term value for our investors by using our investment expertise to identify, create and invest primarily in mortgage related assets, including operating companies, that offer attractive risk-adjusted returns. Our investment strategy also involves opportunistically pursuing acquisitions and seeking to establish strategic partnerships that we believe enable us to maximize the value of the mortgage loans we originate and service by offering products and services to customers, servicers, and other parties through the lifecycle of transactions that affect each mortgage loan and underlying residential property. For more information about our investment guidelines, see “Item 1. Business — Investment Guidelines” of our annual report on Form 10-K for the year ended December 31, 2020.

As of September 30, 2021, we had $42 billion in total assets and 12,749 employees employed by our operating entities.

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

OUR MANAGER

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

STRATEGIC INVESTMENTS AND ACQUISITIONS

On April 14, 2021, we entered into a purchase agreement to acquire all of the assets and liabilities of Caliber through the acquisition of its outstanding common stock. On August 23, 2021, we completed the acquisition of all of the outstanding equity interests of Caliber from LSF Pickens Holdings, LLC for a purchase price of $1.318 billion in cash. Caliber is a leading mortgage originator and servicer. As a result of the acquisition, we expect to increase our scale and market position in the mortgage market.

Subsequent to September 30, 2021, we announced that we had entered into a definitive agreement with affiliates of The Goldman Sachs Group, Inc. (“Goldman Sachs”) to acquire Genesis, a leading business purpose lender that provides innovative solutions to developers of new construction, fix and flip and rental hold projects, and acquire a related portfolio of loans. Genesis adds a new complementary business line and adds business purpose lending to our suite of products. Furthermore, we believe the acquisition supports our growing single-family rental strategy that allows us to capture additional unmet demand from our Retail and Wholesale origination channels. We intend to finance the transaction with existing cash and committed asset-based financing from Goldman Sachs. The acquisition of Genesis is expected to close in the fourth quarter of 2021, subject to certain approvals and customary closing conditions.

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CAPITAL ACTIVITIES

On September 14, 2021, we priced our underwritten public offering of 17,000,000 of our 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, we granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for us, we granted options to the Manager relating to approximately 1.9 million shares of our common stock at $10.89 per share.

The Company intends to use the net proceeds from the offering for general corporate purposes.

MARKET CONSIDERATIONS

Incoming economic data and indicators regarding the overall financial health and condition of the U.S. for the third quarter of 2021 were somewhat mixed. On balance, the broader financial markets remained relatively unchanged during the third quarter despite inflation concerns and potential headwinds over the spread of the more-contagious, more-vaccine-resistant COVID-19 “Delta” variant. The U.S. real gross domestic product (“GDP”) increased during the quarter, albeit at a slower rate compared to the first half of 2021. Labor market conditions continued to improve with the total unemployment rate stepping down notably to 4.8% at September 30, 2021 from 5.9% at June 30, 2021. The consumer price inflation—as measured by the 12-month percentage change in the personal consumption expenditures (“PCE”) price index—remained elevated and well above the Federal Reserve’s longer-term goal of 2.0%, largely driven by supply constraints and bottlenecks.

Consumer spending slowed in the third quarter after expanding markedly in the first half of 2021. The spread of the Delta variant in conjunction with lower inventories and higher prices due to supply constraints tempered consumer spending on goods and services across the board.

Housing demand remained strong during the quarter despite shortages in materials, with construction of single-family homes and home sales remaining above pre-pandemic levels, and house prices rising further. In the residential mortgage market, financing conditions during the third quarter of 2021 remained accommodative for credit-worthy borrowers who met standard conforming loan criteria. Mortgage rates increased slightly during the quarter but remained very low by historical standards. Credit availability continued to improve, especially for jumbo loans and lower-score FHA borrowers. Mortgage originations for home-purchases and refinancing were solid throughout the quarter. The share of mortgages in forbearance declined further. While loan originations benefited from low interest rates, including the recent elimination of the 0.5% mortgage refinancing pandemic fee imposed by Fannie Mae and Freddie Mac, gain on sale margins continued to tighten, driven by the Federal Reserve’s talk of increasing interest rates and potential tapering of mortgage bond purchases, as well as increased competition among loan originators seeking to capture volume and market share from a shrinking pool of eligible borrowers.

The U.S. economic outlook for the remainder of the year continues to be uncertain and still largely dependent on the course of COVID-19. While the FDA’s first fully approved COVID-19 vaccine in late August 2021 aided in slowing the spread of COVID-19, the overall number of infections remained elevated, which in turn is expected to exert a larger amount of restraint on consumer spending, hiring, and labor supply than previously anticipated earlier in the year. Real GDP is expected to rise more slowly but at a still-solid pace, supported by the continued reopening of the economy and potential easing of supply chain disruptions.

The market conditions discussed above influence our investment strategy and results, many of which have been significantly impacted since mid-March 2020 by the ongoing COVID-19 pandemic.

The following table summarizes the U.S. gross domestic product estimates annualized rate by quarter:
Three Months Ended
September 30,
2021		June 30,
2021		March 31,
2021		December 31, 2020September 30, 2020
Real GDP2.0 %6.7 %6.3 %4.3 %33.4 %

The following table summarizes the U.S. unemployment rate according to the U.S. Department of Labor:
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September 30,
2021		June 30,
2021		March 31,
2021		December 31, 2020September 30,
2020
Unemployment rate4.8 %5.9 %6.0 %6.7 %7.9 %

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:
September 30,
2021		June 30,
2021		March 31,
2021		December 31,
2020		September 30,
2020
10-year U.S. Treasury rate1.6 %1.5 %1.7 %0.9 %0.7 %
30-year fixed mortgage rate2.9 %3.0 %3.1 %2.7 %2.9 %

We believe the estimates and assumptions underlying our Consolidated Financial Statements are reasonable and supportable based on the information available as of September 30, 2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may materially differ from those estimates. The COVID-19 pandemic and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions.

UPCOMING CHANGES TO LIBOR

The London Interbank Offered Rate (“LIBOR”) is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives. It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market. In addition, on March 5, 2021, the ICE Benchmark Administration confirmed its intention to ease publication of (i) one week and two-month USD LIBOR settings after December 31, 2021 and (ii) the remaining USD LIBOR settings after June 30, 2023. The U.S. and other countries are currently working to replace LIBOR with alternative reference rates. In the U.S., the Alternative Reference Rates Committee (“ARRC”), has identified the Secured Overnight Financing Rate (“SOFR”), as its preferred alternative rate for U.S. dollar-based LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants may continue to explore whether other U.S. dollar-based reference rates would be more appropriate for certain types of instruments. The ARRC has proposed a paced market transition plan to SOFR, and various organizations are currently working on industry wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks and our exposure.

In preparation for the phase-out of LIBOR, we adopted and implemented the SOFR index for our Freddie Mac and Fannie Mae adjustable-rate mortgages (“ARMs”) and non-QM loans. For debt facilities that do not mature prior to the phase-out of LIBOR, we have implemented amending terms to transition to an alternative benchmark. We continue to evaluate the transitional impact to serviced ARMs.

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OUR PORTFOLIO

Our portfolio, as of September 30, 2021, consists of servicing and origination, including our subsidiary operating entities, residential securities and loans and other investments, as described in more detail below (dollars in thousands).
Servicing and OriginationResidential Securities and Loans
OriginationServicingMSR Related InvestmentsTotal Servicing and OriginationReal Estate SecuritiesResidential Mortgage LoansConsumer LoansCorporateTotal
September 30, 2021
Investments$11,714,006 $4,848,688 $3,017,963 $19,580,657 $9,973,795 $2,958,434 $547,795 $— $33,060,681 
Cash and cash equivalents768,301 102,825 321,924 1,193,050 171,532 53 1,778 265 1,366,678 
Restricted cash35,284 87,969 29,525 152,778 15,704 1,457 24,806 — 194,745 
Other assets1,484,399 2,582,560 2,072,971 6,139,930 368,724 131,996 38,987 272,906 6,952,543 
Goodwill11,836 12,540 5,092 29,468 — — — — 29,468 
Total assets$14,013,826 $7,634,582 $5,447,475 $27,095,883 $10,529,755 $3,091,940 $613,366 $273,171 $41,604,115 
Debt$11,390,069 $3,201,575 $3,779,105 $18,370,749 $9,663,568 $2,392,505 $499,669 $624,435 $31,550,926 
Other liabilities583,220 2,389,688 108,326 3,081,234 (6,108)182,653 746 167,551 3,426,076 
Total liabilities11,973,289 5,591,263 3,887,431 21,451,983 9,657,460 2,575,158 500,415 791,986 34,977,002 
Total equity2,040,537 2,043,319 1,560,044 5,643,900 872,295 516,782 112,951 (518,815)6,627,113 
Noncontrolling interests in equity of consolidated subsidiaries16,134 — 13,283 29,417 — — 41,606 — 71,023 
Total New Residential stockholders’ equity$2,024,403 $2,043,319 $1,546,761 $5,614,483 $872,295 $516,782 $71,345 $(518,815)$6,556,090 
Investments in equity method investees$— $— $103,956 $103,956 $— $— $— $— $103,956 

Operating Investments

Origination

For the three months ended September 30, 2021, loan origination volume was $34.5 billion, up from $23.5 billion in the quarter prior. Funded volumes by channel represented roughly 19%, 16%, 13% and 52% of total volume for Direct to Consumer, Retail / Joint Venture, Wholesale and Correspondent, respectively, as compared to 27%, 4%, 10% and 58% for the three months ended June 30, 2021. The increase in funded volumes quarter over quarter was primarily driven by the addition of the Caliber origination platform following the close of the Caliber acquisition in August 2021. Pull-through adjusted lock volume was $31.7 billion, compared to $20.5 billion in the prior quarter. During the three months ended September 30, 2021, refinance activity represented 52% of overall funded volumes and purchase activity represented 48% of overall funded volumes. This compared to 64% for refinance and 36% for purchase, respectively, in the prior quarter. Caliber represented approximately 15% and 11% of total purchase and refinance activity, respectively, for the third quarter. Purchase activity for the broader industry is expected to continue to increase. Gain on sale margin for the three months ended September 30, 2021 was 1.61%, 30 bps higher than the 1.31% for the prior quarter primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. While increased competition and capacity have driven gain on sale margins from their highs in 2020, we expect margins to stabilize, especially in third-party originated channels, as industry capacity adjusts to demand.

Included in our Origination segment are the financial results of two affiliated businesses, E Street Appraisal Management LLC (“E Street”) and Avenue 365 Lender Services, LLC (“Avenue 365”). E Street offers appraisal valuation services and Avenue 365 provides title insurance and settlement services to Newrez and Caliber.

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The following table provides loan production by channel and product:
Unpaid Principal Balance
Three Months EndedNine Months Ended
(in millions)September 30, 2021% of TotalJune 30, 2021% of TotalSeptember 30, 2021% of TotalSeptember 30, 2020% of TotalQoQ ChangeYoY Change
Production by Channel
  Direct to Consumer$6,425 19 %$6,404 27 %$18,502 22 %$8,571 23 %$21 $9,931 
  Retail / Joint Venture5,556 16 %1,007 4 %7,613 9 %2,789 7 %4,549 4,824 
  Wholesale4,476 13 %2,413 10 %9,561 11 %4,893 13 %2,063 4,668 
  Correspondent18,017 52 %13,656 58 %49,491 58 %21,494 57 %4,361 27,997 
Total Production by Channel$34,474 100 %$23,480 100 %$85,167 100 %$37,747 100 %$10,994 $47,420 
Production by Product
  Agency$24,709 72 %$17,649 75 %$61,942 73 %$24,316 64 %$7,060 $37,626 
  Government8,872 26 %5,632 24 %21,978 26 %12,709 34 %3,240 9,269 
  Non-QM184 1 %63 — %247 — %365 1 %121 (118)
  Non-Agency602 2 %120 1 %860 1 %294 1 %482 566 
  Other107 — %16 — %140 — %63 — %91 77 
Total Production by Product$34,474 100 %$23,480 100 %$85,167 100 %$37,747 100 %$10,994 $47,420 
% Purchase48 %36 %38 %30 %
% Refinance52 %64 %62 %70 %

The following table provides information regarding Gain on Originated Mortgage Loans, Held-for-Sale, Net:
Three Months EndedNine Months Ended
(dollars in thousands)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Gain on originated mortgage loans, held-for-sale, net(A)(B)(C)(D)
$510,740$268,539 $1,163,702$885,730 $242,201 $277,972 
Pull through adjusted lock volume$31,731,617$20,497,057$79,135,350$44,044,241 $11,234,560 $35,091,109 
Gain on originated mortgage loans, as a percentage of pull through adjusted lock volume, by channel:
Direct to Consumer3.99 %3.83 %4.02 %4.44 %
Retail / Joint Venture3.80 %4.81 %4.02 %3.70 %
Wholesale1.04 %0.95 %1.21 %2.29 %
Correspondent0.32 %0.25 %0.30 %0.66 %
Total gain on originated mortgage loans, as a percentage of pull through adjusted lock volume1.61 %1.31 %1.47 %2.01 %
(A)Includes realized gains on loan sales and related new MSR capitalization, changes in repurchase reserves, changes in fair value of IRLCs, changes in fair value of loans held for sale and economic hedging gains and losses.
(B)Includes loan origination fees of $678.4 million and $438.9 million for the three months ended September 30, 2021 and June 30, 2021, respectively. Includes loan origination fees of $1,775.7 million and $953.1 million for the nine months ended September 30, 2021 and 2020, respectively.
(C)Excludes $56.0 million and $18.3 million of Gain on Originated Mortgage Loans, Held-for-Sale, Net for the three months ended September 30, 2021 and June 30, 2021, respectively, related to the MSR Related Investments, Servicing, and Residential Mortgage Loans segments, as well as intercompany eliminations (Note 8 to the Consolidated Financial Statements). Excludes $93.4 million and $81.1 million of Gain on Originated Mortgage Loans, Held-for-Sale, Net for the nine months ended September 30, 2021 and 2020, respectively.
(D)Excludes mortgage servicing rights revenue on recaptured loan volume delivered back to NRM.

Total Gain on Originated Mortgage Loans, Held-for-Sale, Net increased for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. Total Gain on Originated Mortgage
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Loans, Held-for-Sale, Net increased for the nine months ended September 30, 2021 compared to the same period in 2020 primarily driven by the higher volume from all our channels.

Servicing

Our servicing business operates through our performing loan servicing division and a special servicing division, Shellpoint Mortgage Servicing (“SMS”). The performing loan servicing division services performing Agency and government-insured loans. SMS services delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying mortgage loans. During the third quarter, as part of the Caliber acquisition, we assumed Caliber’s servicing portfolio, including $156 billion of UPB of performing servicing. As of September 30, 2021, the performing loan servicing division (Newrez and Caliber) serviced $378.8 billion UPB of loans and Shellpoint Mortgage Servicing serviced $97.0 billion UPB of loans, for a total servicing portfolio of $475.8 billion UPB, representing a 56% increase from June 30, 2021. Active forbearances within this portfolio continued to decline in the second quarter 2021 as our servicer continued to help homeowners and clients navigate the COVID-19 landscape. Only 1.94% of this portfolio was in active forbearance as of September 30, 2021, down from 2.46% in the quarter prior, with minimal additions in new forbearance requests during the quarter. Our servicer has continued to leverage proprietary loss mitigation technology to help homeowners move into permanent solutions such as repayment plans, deferments, and loan modifications.

The table below provides the mix of our serviced assets portfolio between subserviced performing servicing on behalf of New Residential or its subsidiaries (labeled as “Performing Servicing”) and subserviced non-performing, or special servicing (labeled as “Special Servicing”) for third parties and delinquent loans subserviced for other New Residential subsidiaries for the periods presented.
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Unpaid Principal Balance
(in millions)September 30, 2021June 30, 2021September 30, 2020QoQ ChangeYoY Change
Performing Servicing
MSR Assets$368,716 $207,881 $185,273 $160,835 $183,443 
Residential Whole Loans9,119 6,301 2,975 2,818 6,144 
Third Party954 — — 954 954 
Total Performing Servicing378,789 214,182 188,248 164,607 190,541 
Special Servicing
MSR Assets16,450 13,866 14,566 2,584 1,884 
Residential Whole Loans5,779 1,450 7,258 4,329 (1,479)
Third Party74,814 76,409 77,131 (1,595)(2,317)
Total Special Servicing97,043 91,725 98,955 5,318 (1,912)
Total Servicing Portfolio$475,832 $305,907 $287,203 $169,925 $188,629 
Agency Servicing
MSR Assets$269,830 $157,848 $143,555 $111,982 $126,275 
Residential Whole Loans— — — — — 
Third Party12,319 13,155 19,216 (836)(6,897)
Total Agency Servicing282,149 171,003 162,771 111,146 119,378 
Government-insured Servicing
MSR Assets105,976 58,604 55,894 47,372 50,082 
Residential Whole Loans— — — — — 
Third Party— — 1,342 — (1,342)
Total Government Servicing105,976 58,604 57,236 47,372 48,740 
Non-Agency (Private Label) Servicing
MSR Assets9,360 5,295 390 4,065 8,970 
Residential Whole Loans14,898 7,751 10,233 7,147 4,665 
Third Party63,449 63,254 56,573 195 6,876 
Total Non-Agency (Private Label) Servicing87,707 76,300 67,196 11,407 20,511 
Total Servicing Portfolio$475,832 $305,907 $287,203 $169,925 $188,629 
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Three Months EndedNine Months Ended
(in thousands)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Base Servicing Fees
MSR Assets$174,220 $143,999 $477,020 $258,311 $30,221 $218,709 
Residential Whole Loans11,281 1,163 13,518 10,938 10,118 2,580 
Third Party24,245 25,408 77,051 83,468 (1,163)(6,417)
Total Base Servicing Fees$209,746 $170,570 $567,589 $352,717 $39,176 $214,872 
Other Fees
Incentive fees$23,698 $20,349 $64,296 $29,565 $3,349 $34,731 
Ancillary fees14,822 11,519 37,330 30,623 3,303 6,707 
Boarding fees2,425 2,510 6,872 8,580 (85)(1,708)
Other fees6,829 7,516 20,056 11,475 (687)8,581 
Total Other Fees(A)
$47,774 $41,894 $128,554 $80,243 $5,880 $48,311 
Total Servicing Fees$257,520 $212,464 $696,143 $432,960 $45,056 $263,183 
(A)Includes other fees earned from third parties of $14.9 million and $15.4 million for the three months ended September 30, 2021 and June 30, 2021, respectively, and $46.6 million and $55.1 million for the nine months ended September 30, 2021 and 2020, respectively.

MSR Related Investments

MSRs and MSR Financing Receivables

As of September 30, 2021, we had $6.6 billion carrying value of MSRs and MSR Financing Receivables. As of September 30, 2021, our Full and Excess MSR portfolio increased to $635 billion UPB from $536 billion UPB as of December 31, 2020. Full MSRs as of September 30, 2021 increased to $550 billion from $435 billion UPB as of December 31, 2020. Excess MSRs as of September 30, 2021 decreased to $85 billion UPB from $101 billion as of December 31, 2020. The increase in portfolio size during the periods presented was predominantly a result of the Caliber acquisition and MSRs retained from originations offset by prepayments.

We finance our MSRs and MSR financing receivables with short- and medium-term bank and public capital markets notes. These borrowings are primarily recourse debt and bear both fixed and variable interest rates offered by the counterparty for the term of the notes of a specified margin over LIBOR. The capital markets notes are typically issued with a collateral coverage percentage, which is a quotient expressed as a percentage equal to the aggregate note amount divided by the market value of the underlying collateral. The market value of the underlying collateral is generally updated on a quarterly basis and if the collateral coverage percentage becomes greater than or equal to a collateral trigger, generally 90%, we may be required to add funds, pay down principal on the notes, or add additional collateral to bring the collateral coverage percentage below 90%. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.”

See Note 11 to our Consolidated Financial Statements for further information regarding financing of our MSRs and MSR Financing Receivables.

We have contracted with certain subservicers and, in relation to certain MSR purchases, interim subservicers, to perform the related servicing duties on the residential mortgage loans underlying our MSRs. As of September 30, 2021, these subservicers include PHH, Mr. Cooper, LoanCare, and Flagstar, which subservice 10.8%, 9.9%, 8.9% and 0.4% of the underlying UPB of the related mortgages, respectively (includes both MSRs and MSR Financing Receivables).The remaining 70.0% of the underlying UPB of the related mortgages is subserviced by Newrez and Caliber (Note 1 to our Consolidated Financial Statements).

We are generally obligated to fund all future servicer advances related to the underlying pools of mortgage loans on our MSRs and MSR Financing Receivables. Generally, we will advance funds when the borrower fails to meet, including forbearances, contractual payments (e.g. principal, interest, property taxes, insurance). We will also advance funds to maintain and report foreclosed real estate properties on behalf of investors. Advances are recovered through claims to the related investor and subservicers. Pursuant to our servicing agreements, we are obligated to make certain advances on mortgage loans to be in
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compliance with applicable requirements. In certain instances, the subservicer is required to reimburse us for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract.

We finance our servicer advances with short- and medium-term collateralized borrowings. These borrowings are non-recourse committed facilities that are not subject to margin calls and bear both fixed and variable interest rates offered by the counterparty for the term of the notes, generally less than one year, of a specified margin over LIBOR. See Note 11 to our Consolidated Financial Statements for further information regarding financing of our servicer advances.

See Note 5 to our Consolidated Financial Statements for further information regarding our MSR Financing Receivables.

The table below summarizes our MSRs and MSR Financing Receivables as of September 30, 2021.
(dollars in millions)Current UPBWeighted Average MSR (bps)Carrying Value
GSE$374,945.6 28 bps$4,273.4 
Non-Agency68,903.6 48 966.1 
Ginnie Mae105,975.4 39 1,325.8 
Total$549,824.6 33 bps$6,565.3 

The following table summarizes the collateral characteristics of the loans underlying our MSRs and MSR Financing Receivables as of September 30, 2021 (dollars in thousands):
Collateral Characteristics
Current Carrying AmountCurrent Principal BalanceNumber of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
GSE$4,273,376 $374,945,577 2,156,647 754 3.7 %279 51 1.8 %23.0 %22.9 %0.1 %19.4 %
Non-Agency966,051 68,903,562 575,219 639 4.3 %293 180 10.9 %13.3 %12.0 %1.5 %4.0 %
Ginnie Mae1,325,840 105,975,422 492,986 698 3.3 %333 24 0.9 %23.0 %22.8 %0.1 %22.3 %
Total$6,565,267 $549,824,561 3,224,852 729 3.7 %291 62 2.7 %21.8 %21.5 %0.3 %18.1 %

Collateral Characteristics
Delinquency 30 Days(F)
Delinquency 60 Days(F)
Delinquency 90+ Days(F)
Loans in ForeclosureReal Estate OwnedLoans in Bankruptcy
GSE0.8 %0.2 %1.9 %0.3 %— %0.2 %
Non-Agency6.5 %2.0 %5.1 %5.5 %0.9 %2.3 %
Ginnie Mae2.2 %0.7 %3.2 %0.3 %— %0.4 %
Total1.8 %0.5 %2.5 %0.9 %0.1 %0.5 %
(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.

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Excess MSRs
The tables below summarize the terms of our Excess MSRs:

Summary of Direct Excess MSRs as of September 30, 2021
MSR Component(A)
Excess MSR
Current UPB
(billions)		Weighted Average MSR (bps)Weighted Average Excess MSR (bps)Interest in Excess MSR (%)Carrying Value (millions)
Agency$28.4 29 bps21 bps32.5% - 66.7%$139.3 
Non-Agency(B)
32.2 35 15 33.3% - 100%130.9 
Total/Weighted Average$60.6 32 bps18 bps$270.2 
(A)The MSR is a weighted average as of September 30, 2021, 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 6 to our Consolidated Financial Statements) on $21.6 billion UPB underlying these Excess MSRs.

Summary of Excess MSRs Through Equity Method Investees as of September 30, 2021
MSR Component(A)
Current UPB (billions)Weighted Average MSR (bps)Weighted Average Excess MSR (bps)New Residential Interest in Investee (%)Investee Interest in Excess MSR (%)New Residential Effective Ownership (%)Investee Carrying Value (millions)
Agency$24.2 31 bps21 bps50.0 %66.7 %33.3 %$158.9 
Total/Weighted Average$24.2 31 bps21 bps$158.9 
(A)The MSR is a weighted average as of September 30, 2021, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

The following table summarizes the collateral characteristics of the loans underlying our direct Excess MSRs as of September 30, 2021 (dollars in thousands):
Collateral Characteristics
Current Carrying AmountCurrent Principal BalanceNumber of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
Agency
Original Pools$82,307 $17,923,229 150,628 731 4.5 %227 141 1.5 %26.2 %24.8 %1.9 %22.4 %
Recaptured Loans56,982 10,495,764 66,048 736 3.9 %262 49 — %25.5 %24.6 %1.2 %38.5 %
$139,289 $28,418,993 216,676 733 4.3 %241 105 0.9 %26.0 %24.7 %1.6 %28.4 %
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools$106,967 $28,581,082 166,746 680 4.2 %269 186 8.7 %18.7 %16.8 %2.2 %14.6 %
Recaptured Loans23,924 3,598,781 17,255 743 3.7 %273 30 — %25.4 %25.5 %— %40.1 %
$130,891 $32,179,863 184,001 687 4.2 %269 169 7.1 %19.3 %17.6 %2.0 %18.2 %
Total/Weighted Average(H)
$270,180 $60,598,856 400,677 708 4.2 %256 140 3.9 %22.4 %20.9 %1.9 %23.7 %
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Collateral Characteristics
DelinquencyLoans in
Foreclosure		Real
Estate
Owned		Loans in
Bankruptcy
30 Days(G)
60 Days(G)
90+ Days(G)
Agency
Original Pools1.8 %0.5 %4.6 %0.5 %0.1 %0.1 %
Recaptured Loans1.2 %0.3 %3.7 %0.1 %— %— %
1.5 %0.4 %4.3 %0.4 %0.1 %0.1 %
Non-Agency(F)
Mr. Cooper and SLS Serviced:
Original Pools10.8 %6.2 %4.7 %5.5 %0.3 %1.3 %
Recaptured Loans1.4 %0.2 %2.1 %0.1 %— %— %
9.8 %5.5 %4.4 %4.9 %0.3 %1.2 %
Total/Weighted Average(H)
6.0 %3.2 %4.3 %2.8 %0.2 %0.7 %
(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 6 to our Consolidated Financial Statements) on $21.6 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.

The following table summarizes the collateral characteristics as of September 30, 2021 of the loans underlying Excess MSRs made through joint ventures accounted for as equity method investees (dollars in thousands). For each of these pools, we own a 50% interest in an entity that invested in a 66.7% interest in the Excess MSRs.

Collateral Characteristics
Current Carrying AmountCurrent
Principal
 Balance		New Residential Effective Ownership
(%)		Number
of Loans
WA FICO Score(A)
WA CouponWA Maturity (months)Average Loan
Age (months)
Adjustable Rate Mortgage %(B)
Three Month Average CPR(C)
Three Month Average CRR(D)
Three Month Average CDR(E)
Three Month Average Recapture Rate
Agency 
Original Pools$92,577 $12,590,174 33.3 %139,932 715 5.1 %218 160 1.2 %25.2 %22.3 %3.6 %25.3 %
Recaptured Loans66,339 11,640,552 33.3 %88,610 721 4.0 %258 58 — %26.3 %24.3 %3.0 %44.4 %
Total/Weighted Average(G)
$158,916 $24,230,726 228,542 718 4.6 %237 111 1.2 %25.9 %23.3 %3.3 %34.9 %

Collateral Characteristics
DelinquencyLoans in
Foreclosure		Real
Estate
Owned		Loans in
Bankruptcy
30 Days(F)
60 Days(F)
90+ Days(F)
Agency
Original Pools2.5 %0.6 %4.3 %0.7 %0.1 %0.1 %
Recaptured Loans1.6 %0.4 %4.1 %0.1 %— %0.1 %
Total/Weighted Average(G)
2.1 %0.5 %4.2 %0.5 %0.1 %0.1 %
(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.
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(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.

Servicer Advance Investments

The following is a summary of our Servicer Advance Investments, including the right to the basic fee component of the related MSRs (dollars in thousands):
September 30, 2021
Amortized Cost Basis
Carrying Value(A)
UPB of Underlying Residential Mortgage LoansOutstanding Servicer AdvancesServicer Advances to UPB of Underlying Residential Mortgage Loans
Servicer advance investments
Mr. Cooper and SLS serviced pools$453,442 $472,004 $21,568,182 $408,085 1.9 %
(A)Carrying value represents the fair value of the Servicer advance investments, including the basic fee component of the related MSRs.

The following is additional information regarding our Servicer advance investments, and related financing, as of and for the nine months ended September 30, 2021 (dollars in thousands):
Nine Months Ended
September 30, 2021
Loan-to-Value (“LTV”)(A)
Cost of Funds(B)
Weighted Average Discount Rate
Weighted Average Life (Years)(C)
Change in Fair Value Recorded in Other IncomeFace Amount of Secured Notes and Bonds PayableGross
Net(D)
GrossNet
Servicer advance
    investments(E)
5.2 %6.0$(6,535)$381,286 89.4 %95.1 %1.3 %1.2 %
(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:
September 30, 2021
Principal and interest advances$75,564 
Escrow advances (taxes and insurance advances)170,817 
Foreclosure advances161,704 
Total$408,085 

MSR Related Services Businesses

Our MSR related investments segment also includes the activity from several wholly-owned subsidiaries or minority investments in companies that perform various services in the mortgage and real estate industries. Our subsidiary Guardian is a national provider of field services and property management services. We also made a strategic minority investment in Covius,
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a provider of various technology-enabled services to the mortgage and real estate industries. As of September 30, 2021, our ownership interest in Covius is 24.3%.

Residential Securities and Loans

Real Estate Securities

Agency RMBS
The following table summarizes our Agency RMBS portfolio as of September 30, 2021 (dollars in thousands):
Gross Unrealized
Asset TypeOutstanding Face AmountAmortized Cost BasisPercentage of Total Amortized Cost BasisGainsLosses
Carrying
Value(A)
CountWeighted Average Life (Years)
3-Month CPR(B)
Outstanding Repurchase Agreements
Agency RMBS$8,879,217 $9,161,405 100.0 %$6,799 $(185,517)$8,982,687 41 6.613.2 %$8,956,064 
(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.

The following table summarizes the net interest spread of our Agency RMBS portfolio for the three months ended September 30, 2021:
Net Interest Spread(A)
Weighted Average Asset Yield2.15 %
Weighted Average Funding Cost0.16 %
Net Interest Spread1.99 %
(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.

We finance our investments in Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At September 30, 2021 and December 31, 2020, the Company pledged Agency RMBS with a carrying value of approximately $9.3 billion and $13.8 billion, respectively, as collateral for borrowings under repurchase agreements. To the extent available on desirable terms, we expect to continue to finance our acquisitions of Agency RMBS with repurchase agreement financing. See Note 11 to our Consolidated Financial Statements for further information regarding financing of our Agency RMBS.

Non-Agency RMBS
The following table summarizes our Non-Agency RMBS portfolio as of September 30, 2021 (dollars in thousands):
Asset TypeOutstanding Face AmountAmortized Cost BasisGross Unrealized
Carrying
Value(A)
Outstanding Repurchase Agreements
GainsLosses
Non-Agency RMBS$16,615,220 $921,874 $115,170 $(45,936)$991,108 $665,343 
(A)Fair value, which is equal to carrying value for all securities.

The following tables summarize the characteristics of our Non-Agency RMBS portfolio and of the collateral underlying our Non-Agency RMBS as of September 30, 2021 (dollars in thousands):
 
Non-Agency RMBS Characteristics(A)
Vintage(B)
Average Minimum Rating(C)
Number of SecuritiesOutstanding Face AmountAmortized Cost BasisPercentage of Total Amortized Cost BasisCarrying Value
Principal Subordination(D)
Excess Spread(E)
Weighted Average Life (Years)
Weighted Average Coupon(F)
Pre-2008NR126 $457,520 $18,393 2.0 %$23,590 — %— %3.85.5 %
2008 and laterBBB-466 16,152,892 899,744 98.0 %962,657 24.4 %0.2 %3.42.7 %
Total/weighted averageBBB-592 $16,610,412 $918,137 100.0 %$986,247 23.8 %0.2 %3.42.7 %
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Collateral Characteristics(A)(G)
Vintage(B)
Average Loan Age (years)
Collateral Factor(H)
3-Month CPR(I)
Delinquency(J)
Cumulative Losses to Date
Pre-200813.3 0.10 10.0 %10.0 %10.0 %
2008 and later13.4 0.63 21.1 %4.1 %0.6 %
Total/weighted average13.4 0.62 20.9 %4.2 %0.8 %
(A)Excludes $4.4 million face amount of bonds backed by consumer loans and $0.4 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 301 bonds with a carrying value of $370.9 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 September 30, 2021.
(D)The percentage of amortized cost basis of securities and residual interests that is subordinate to our investments. This excludes interest-only bonds.
(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 September 30, 2021.
(F)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $24.8 million and $2.8 million, respectively, for which no coupon payment is expected.
(G)The weighted average loan size of the underlying collateral is $275.6 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.

The following table summarizes the net interest spread of our Non-Agency RMBS portfolio for the three months ended September 30, 2021:
Net Interest Spread(A)
Weighted average asset yield3.72 %
Weighted average funding cost2.52 %
Net interest spread1.20 %
(A)The Non-Agency RMBS portfolio consists of 29.5% floating rate securities and 70.5% fixed rate securities (based on amortized cost basis).

We finance our investments in Non-Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At September 30, 2021 and December 31, 2020, the Company pledged Non-Agency RMBS with a carrying value of approximately $1.0 billion and $1.5 billion, respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements is subject to daily mark-to-market fluctuations and margin calls. In addition, a portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 11 to our Consolidated Financial Statements for further information regarding financing of our Non-Agency RMBS.

Call Rights

We hold a limited right to cleanup call options with respect to certain securitization trusts (including securitizations we have issued) serviced or master serviced by Mr. Cooper whereby, when the UPB of the underlying residential mortgage loans falls below a pre-determined threshold, we can effectively purchase the underlying residential mortgage loans at par, plus unreimbursed servicer advances, resulting in the repayment of all of the outstanding securitization financing at par, in exchange for a fee of 0.75% of UPB paid to Mr. Cooper at the time of exercise. We similarly hold a limited right to cleanup call options with respect to certain securitization trusts master serviced by SLS for no fee, and also with respect to certain securitization trusts serviced or master serviced by Ocwen subject to a fee of 0.5% of UPB on loans that are current or thirty (30) days or less
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delinquent, paid to Ocwen at the time of exercise. The aggregate UPB of the underlying residential mortgage loans within these various securitization trusts is approximately $80.0 billion.

We continue to evaluate the call rights we acquired from each of our servicers, and our ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. See “Risk Factors—Risks Related to Our Business—Our ability to exercise our cleanup call rights may be limited or delayed if a third party also possessing such cleanup call rights exercises such rights, if the related securitization trustee refuses to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.” The actual UPB of the residential mortgage loans on which we can successfully exercise call rights and realize the benefits therefrom may differ materially from our initial assumptions.

We have exercised our 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, we sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, we received par on the securities issued by the called trusts which we owned prior to such trusts’ termination. Refer to Notes 8 and 16 in our Consolidated Financial Statements for further details on these transactions.

On March 31, 2020, in connection with the sale of certain Non-Agency RMBS (the “Securities”), we agreed to exercise call rights with respect to those Securities on behalf and solely at the direction of one of the buyers.

Refer to Note 16 for additional discussion regarding call rights and transactions with affiliates.

Residential Mortgage Loans

As of September 30, 2021, we had approximately $2.4$14.5 billion outstanding face amount of residential mortgage loans.loans (see below). These investments were financed with repurchasesecured financing agreements with an aggregate face amount of approximately $1,686.7 million$12.9 billion and secured notes and bonds payable with an aggregate face amount of approximately $146.2 million.$1.2 billion. We acquired these loans through open market purchases, through loan origination, as well as through the exercise of call rights.rights and acquisitions.

The following table presents the total residential mortgage loans outstanding by loan type at September 30, 20172021 (dollars in thousands).
Outstanding Face AmountCarrying
Value		Loan
Count		Weighted Average Yield
Weighted Average Life (Years)(A)
Total residential mortgage loans, held-for-investment, at fair value$657,427 $595,012 11,472 6.3 %5.3
Acquired reverse mortgage loans(E)(F)
$12,690 $6,120 28 7.7 %3.7
Acquired performing loans(G)(I)
150,127 136,921 2,977 6.7 %4.5
Acquired non-performing loans(H)(I)
2,123 1,702 24 7.5 %4.8
Total residential mortgage loans, held-for-sale, at lower of cost or market$164,940 $144,743 3,029 6.8 %4.4
Acquired performing loans(G)(I)
$2,100,079 $2,112,181 12,575 3.4 %11.0
Acquired non-performing loans160,098.0 146,370 1 4.8 %5.6
Originated loans11,403,519 11,714,006 13,538 3.0 %27.7
Total residential mortgage loans, held-for-sale, at fair value/lower of cost or market$13,663,696 $13,972,557 27,113 3.1 %24.9
(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. Approximately 54% 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.
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  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)
Reverse Mortgage Loans(E) (F)
 $—
 $—
 —
 —% — —% —% —%  N/A
Performing Loans(G)
 556,361
 507,300
 8,079
 8.0% 5.6 18.7% 78.8% 7.6% 651
Purchased Credit Deteriorated Loans(H)
 264,183
 194,927
 2,258
 7.1% 3.0 14.4% 81.5% 79.3% 597
Total Residential Mortgage Loans, held-for-investment $820,544
 $702,227
 10,337
 7.7% 4.8 17.3% 79.6% 30.7% 634
                   
Reverse Mortgage Loans(E) (F)
 $19,207
 $9,342
 51
 7.2% 4.3 13.6% 135.1% 81.6%  N/A
Performing Loans(G) (I)
 779,618
 791,134
 11,139
 4.0% 4.9 16.4% 65.8% 3.4% 663
Non-Performing Loans(H) (I)
 820,912
 626,275
 5,228
 5.5% 4.3 21.4% 97.0% 60.0% 583
Total Residential Mortgage Loans, held-for-sale $1,619,737
 $1,426,751
 16,418
 4.8% 4.6 18.9% 82.4% 33.0% 622
(G)Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due.

(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 $0.5 million. Approximately 59% 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 September 30, 2017, we have placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.
(I)Includes $34.9 million and $70.6 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

(H)As of September 30, 2021, we have placed all Non-Performing Loans, held-for-sale on nonaccrual status, except as described in (I) below.

(I)Includes $981.3 million and $101.6 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.


We consider the delinquency status, loan-to-value ratios, and geographic area of residential mortgage loans as our credit quality indicators.


We finance a significant portion of our investments in residential mortgage loans with borrowings under repurchase agreements. These recourse borrowings bear variable interest rates offered by the counterparty for the term of the proposed repurchase transaction, generally less than one year, of a specified margin over the one-month LIBOR. At September 30, 2021 and December 31, 2020, the Company pledged mortgage loans with a carrying value of approximately $13.8 billion and $4.5 billion, respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements are subject to daily mark-to-market fluctuations and margin calls. A portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. The difference between the collateral coverage percentage and the collateral trigger is referred to as a “margin holiday.” See Note 11 to our Consolidated Financial Statements for further information regarding financing of our mortgage loans.

Other


Consumer Loans

On April 1, 2013, we completed, through newly formed limited liability companies (together, the “Consumer Loan Companies”), a co-investment in a portfolio of consumer loans. The portfolio included personal unsecured loans and personal homeowner loans originated through subsidiaries of HSBC Finance Corporation. We acquired 30% membership interests in each of the Consumer Loan Companies. Of the remaining 70% of the membership interests, OneMain, which is majority-owned by Fortress funds managed by our Manager, acquired 47% and funds managed by Blackstone Tactical Opportunities Advisors LLC acquired 23%. OneMain acted as the managing member of the Consumer Loan Companies. After a servicing transition period, OneMain became the servicer of the loans and provides all servicing and advancing functions for the portfolio. On October 3, 2014, the Consumer Loan Companies refinanced the portfolio with an asset-backed securitization, resulting in proceeds in excess of the refinanced debt which were distributed to the co-investors. This reduced our basis in the consumer loans investment to $0.0 million and resulted in a gain. Subsequent to this refinancing, we discontinued recording our share of the underlying earnings of the Consumer Loan Companies.

On March 31, 2016, we entered into the SpringCastle Transaction. As a result, we own 53.5% of, and consolidate, the Consumer Loan Companies.

In 2016, we agreed to purchase newly originated consumer loans from a third party (“Consumer Loan Seller”). In the aggregate, as of December 31, 2016, we had purchased $177.4 million UPB of loans for an aggregate purchase price of $176.2 million from Consumer Loan Seller. These loans are not held in the Consumer Loan Companies and have been designated as performing consumer loans, held-for-investment.


The table below summarizes the collateral characteristics of the consumer loans, including those held in the Consumer Loan Companies and those acquired from the Consumer Loan Seller, as of September 30, 20172021 (dollars in thousands):
Collateral Characteristics
UPBPersonal Unsecured Loans %Personal Homeowner Loans %Number of Loans
Weighted Average Original FICO Score(A)
Weighted Average CouponAdjustable Rate Loan %Average Loan Age (months)Average Expected Life (Years)
Delinquency 30 Days(B)
Delinquency 60 Days(B)
Delinquency 90+ Days(B)
12-Month CRR(C)
12-Month CDR(D)
Consumer loans$486,350 58.9 %41.1 %75,391 688 17.6 %12.9 %200 3.21.1 %0.8 %1.2 %22.6 %4.4 %
 Collateral Characteristics
 UPB Personal Unsecured Loans % Personal Homeowner Loans % Number of Loans 
Weighted Average Original FICO Score(A)
 Weighted Average Coupon Adjustable Rate Loan % Average Loan Age (months) Average Expected Life (Years) 
Delinquency 30 Days(B)
 
Delinquency 60 Days(B)
 
Delinquency 90+ Days(B)
 
12-Month CRR(C)
 
12-Month CDR(D)
Consumer loans, held-for-investment$1,472,973
 69.6% 30.4% 182,463
 671
 17.9% 10.6% 139
 3.5
 2.2% 1.2% 2.2% 17.0% 6.3%
(A)Weighted average original FICO score represents the FICO score at the time the loan was originated.
(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.
(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.

(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.
In February 2017, we completed(C)12-month CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the three months as a co-investment, throughpercentage 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 newly formed entity, PF LoanCo Funding LLC (“LoanCo”), to purchase up to $5.0 billion worthpercentage of newly originatedthe total principal balance of the pool.

We have financed our investments in consumer loans with securitized non-recourse long-term notes with a stated maturity date of May 2036. Furthermore, the notes are non-mark-to-market and not subject to margin calls. See Note 11 to our Consolidated Financial Statements for further information regarding financing of our consumer loans.

Single-Family Rental (“SFR”) Portfolio

As of September 30, 2021 our SFR portfolio consisted of approximately 1,882 units with an aggregate carrying value of $403.7 million, up from Consumer Loan Seller over1,155 units with an aggregate carrying value of $227.6 million as of June 30, 2021. During the three months ended September 30, 2021 and June 30, 2021, we acquired approximately 727 and 530 SFR units, respectively.

TAXES

We have elected to be treated as a two year term. REIT for U.S. federal income tax purposes. As a REIT we generally pay no federal or state and local income tax on assets that qualify under the REIT requirements if we distribute out at least 90% of the current taxable income generated from these assets.

We hold certain assets, including Servicer Advance Investments and MSRs, in taxable REIT subsidiaries (“TRSs”) that are subject to federal, state and local income tax because these assets either do not qualify under the REIT requirements or the
83

status of these assets is uncertain. We also operate our securitization program, servicing, origination, and services businesses through TRSs.

As our operating investments continue to grow and become a larger component of our total consolidated income, we anticipate income subject to tax will increase, along with a corresponding increase in tax expense and our consolidated effective tax rate.

At September 30, 2021, we recorded a net deferred tax liability of $407.6 million, including $280.0 million of deferred tax liability recorded as part of the purchase price allocation related to the Caliber acquisition (Note 1). Our net deferred tax liability of $407.6 million is primarily composed of deferred tax liabilities generated through the deferral of gains from loans sold by our origination business with servicing retained by us, as well as, deferred tax liabilities generated from changes in fair value of MSRs, loans, and swaps held in within taxable entities.

For the three co-investors, each acquired 25% membership interestsmonths and nine months ended September 30, 2021, we recognized deferred tax expense of $27.3 million and $119.5 million, respectively, primarily reflecting deferred tax expense generated from changes in LoanCo. For further information, see Note 9 tothe fair value of MSRs, loans, and swaps held within taxable entities as well as income in our Condensed Consolidated Financial Statements.servicing and origination business segments.


The following is a summary of LoanCo’s consumer loan investments:
 Unpaid Principal Balance Interest in Consumer Loans Carrying Value Weighted Average Coupon 
Weighted Average Expected Life (Years)(A)
 
Weighted Average Delinquency(B)
September 30, 2017 (C)
$231,839
 25.0% $231,839
 16.4% 1.4 0.3%

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


(B)Represents the percentage of the total unpaid principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(C)Data as of August 31, 2017 as a result of the one month reporting lag.


APPLICATION OF CRITICAL ACCOUNTING POLICIES
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates. We believe that the estimates and assumptions utilized in the preparation of the Condensed Consolidated Financial Statements are prudent and reasonable. Actual results historically have generally been in line with our estimates and judgments used in applying each of the accounting policies described below, as modified periodically to reflect current market conditions.


Our critical accounting policies as of September 30, 2017,2021, which represent our accounting policies that are most affected by judgments, estimates and assumptions, included all of the critical accounting policies referred to in our annual report on Form 10-K for the year ended December 31, 2016, except as described below.2020.


Consolidation

In May 2017, we securitized a poolThe outbreak of reperforming residential mortgage loans through certain subsidiaries (the “RPL Borrowers” - see Note 9the novel coronavirus pandemic around the globe continues to our Condensed Consolidated Financial Statements). As a resultadversely impact the U.S. and world economies and has contributed to significant volatility in global financial and credit markets. The impact of controlling an optional redemption featurethe outbreak has evolved rapidly. The major disruptions caused by COVID-19 significantly slowed many commercial activities in the securitization, althoughU.S., resulting in a rapid rise in unemployment claims, reduced business revenues and sharp reductions in liquidity and the loans were legally sold, solely for accounting purposes we determined that substantially all of the risks and rewards inherent in owning the loans had not been transferred through the securitization, and that it would not be treated as a sale under GAAP. Furthermore, we have determined that the RPL Borrowers are VIEs and that we are their primary beneficiary, and consolidate them, as a result of controlling the optional redemption feature and owning certain notes issued by the RPL Borrowers.

We account for our investments in LoanCo and WarrantCo pursuant to the equity method of accounting because we can exercise significant influence over LoanCo and WarrantCo, but the requirements for consolidation are not met. Our share of earnings and losses in these equity method investees is included in “Earnings from investments in consumer loans, equity method investees” on the condensed consolidated statements of income. Equity method investments are included in “Investments in consumer loans, equity method investees” on the condensed consolidated balance sheets. LoanCo has elected to measure its investment in consumer loans at fair value and WarrantCo has elected to measure its investments in warrants at fair value.

Mortgage Servicing Rights Financing Receivable

As a result of the length of the initial term of the related subservicing agreements between NRM and PHH, and NRM and Ocwen (Note 5 to our Condensed Consolidated Financial Statements), although the MSRs were legally sold, solely for accounting purposes we determined that substantially all of the risks and rewards inherent in owning the MSRs had not been transferred to NRM, and that the purchase agreements would not be treated as sales under GAAP. Therefore, rather than recording investments in MSRs, we recorded investments in mortgage servicing rights financing receivable. Income from these investments is recorded as interest income, and we have elected to measure these investments at fair value, with changes in fair value flowing through Change in fair value of investmentsmany assets, including those in mortgage servicing rights financing receivablewhich we invest. The ultimate duration and impact of the COVID-19 pandemic and response thereto remains uncertain. We believe the estimates and assumptions underlying our Consolidated Financial Statements are reasonable and supportable based on the information available as of September 30, 2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the Condensed Consolidated Statementscurrent and potential impacts of Income.COVID-19. Actual results may materially differ from those estimates.




Recent Accounting Pronouncements


See Note 1 to our Condensed Consolidated Financial Statements.




RESULTS OF OPERATIONS


The following table summarizes the changes in our results of operations for the three months ended September 30, 2021 compared to the three months ended June 30, 2021 and the nine months ended September 30, 20172021 compared to the three and nine
84

months ended September 30, 20162020 (dollars in thousands). Our results of operations are not necessarily indicative of future performance.
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Revenues
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$398,645 $388,858 $1,168,431 $1,390,042 $9,787 $(221,611)
Change in fair value of MSRs and MSR financing receivables (includes realization of cash flows of $(287,318), $(297,778), $(924,766) and $(1,135,515), respectively)(195,623)(417,983)(421,332)(1,731,378)222,360 1,310,046 
Servicing revenue, net203,022 (29,125)747,099 (341,336)232,147 1,088,435 
Interest income190,633 201,762 593,342 622,224 (11,129)(28,882)
Gain on originated mortgage loans, held-for-sale, net566,761 286,885 1,257,094 966,813 279,876 290,281 
960,416 459,522 2,597,535 1,247,701 500,894 1,349,834 
Expenses
Interest expense129,928 106,539 355,372 463,786 23,389 (108,414)
General and administrative expenses245,071 205,668 647,244 546,939 39,403 100,305 
Compensation and benefits324,545 194,730 717,919 412,402 129,815 305,517 
Management fee to affiliate24,315 23,677 70,154 66,682 638 3,472 
723,859 530,614 1,790,689 1,489,809 193,245 300,880 
Other Income (Loss)
Change in fair value of investments11,112 229,900 1,224 (123,314)(218,788)124,538 
Gain (loss) on settlement of investments, net(98,317)(78,611)(188,919)(968,995)(19,706)780,076 
Other income (loss), net59,266 30,044 79,696 (39,766)29,222 119,462 
(27,939)181,333 (107,999)(1,132,075)(209,272)1,024,076 
Impairment
Provision (reversal) for credit losses on securities(2,370)(1,756)(5,020)15,166 (614)(20,186)
Valuation and credit loss provision (reversal) on loans and real estate owned (REO)8,748 (32,652)(42,617)118,504 41,400 (161,121)
6,378 (34,408)(47,637)133,670 40,786 (181,307)
Income (Loss) Before Income Taxes202,240 144,649 746,484 (1,507,853)57,591 2,254,337 
Income tax expense (benefit)31,559 (1,077)128,741 (48,647)32,636 177,388 
Net Income (Loss)$170,681 $145,726 $617,743 $(1,459,206)$24,955 $2,076,949 
Noncontrolling interests in income (loss) of consolidated subsidiaries9,001 10,053 28,448 34,118 (1,052)(5,670)
Dividends on preferred stock15,533 14,358 44,249 39,938 1,175 4,311 
Net Income (Loss) Attributable to Common Stockholders$146,147 $121,315 $545,046 $(1,533,262)$24,832 $2,078,308 

85


Three Months Ended 
 September 30,		 Increase (Decrease) Nine Months Ended 
 September 30,
Increase (Decrease)

2017 2016 Amount 2017 2016
Amount
Interest income$397,722
 $282,388
 $115,334
 $1,162,212
 $749,901
 $412,311
Interest expense125,278
 96,488
 28,790
 338,664
 278,401
 60,263
Net Interest Income272,444
 185,900
 86,544
 823,548
 471,500
 352,048

           
Impairment           
Other-than-temporary impairment (OTTI) on securities1,509
 1,765
 (256) 8,736
 7,838
 898
Valuation provision (reversal) on loans and real estate owned26,700
 18,275
 8,425
 65,381
 41,845
 23,536

28,209
 20,040
 8,169
 74,117
 49,683
 24,434
            
Net interest income after impairment244,235
 165,860
 78,375
 749,431
 421,817
 327,614
Servicing revenue, net58,014
 —
 58,014
 269,467
 —
 269,467
Other Income           
Change in fair value of investments in excess mortgage servicing rights(14,291) (17,060) 2,769
 (32,650) (24,397) (8,253)
Change in fair value of investments in excess mortgage servicing rights, equity method investees2,054
 6,261
 (4,207) 6,056
 8,608
 (2,552)
Change in fair value of investments in mortgage servicing rights financing receivable70,232
 —
 70,232
 75,828
 —
 75,828
Change in fair value of servicer advance investments10,941
 21,606
 (10,665) 70,469
 4,328
 66,141
Gain on consumer loans investment—
 —
 —
 —
 9,943
 (9,943)
Gain on remeasurement of consumer loans investment—
 —
 —
 —
 71,250
 (71,250)
Gain (loss) on settlement of investments, net1,553
 (11,165) 12,718
 1,250
 (37,682) 38,932
Earnings from investments in consumer loans, equity method investees6,769
 —
 6,769
 12,649
 —
 12,649
Other income (loss), net9,887
 27,059
 (17,172) 7,696
 6,850
 846

87,145
 26,701
 60,444
 141,298
 38,900
 102,398

           
Operating Expenses           
General and administrative expenses19,919
 8,777
 11,142
 47,788
 28,082
 19,706
Management fee to affiliate14,187
 10,536
 3,651
 41,447
 30,552
 10,895
Incentive compensation to affiliate19,491
 7,075
 12,416
 72,123
 13,200
 58,923
Loan servicing expense13,690
 14,187
 (497) 40,068
 30,037
 10,031
Subservicing expense49,773
 —
 49,773
 123,435
 —
 123,435

117,060
 40,575
 76,485
 324,861
 101,871
 222,990
            
Income (Loss) Before Income Taxes272,334
 151,986
 120,348
 835,335
 358,846
 476,489
Income tax expense (benefit)32,613
 20,900
 11,713
 121,053
 18,195
 102,858
Net Income (Loss)$239,721
 $131,086
 $108,635
 $714,282
 $340,651
 $373,631
Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries$13,600
 $32,178
 $(18,578) $45,051
 $61,355
 $(16,304)
Net Income (Loss) Attributable to Common Stockholders$226,121
 $98,908
 $127,213
 $669,231
 $279,296
 $389,935
Servicing Revenue, Net



Servicing Revenue, Net consists of the following:
Interest Income
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Servicing fee revenue, net and interest income from MSRs and MSR financing receivables$384,953 $344,256 $1,069,544 $1,249,504 $40,697 $(179,960)
Ancillary and other fees13,692 44,602 98,887 140,538 (30,910)(41,651)
Servicing fee revenue and fees398,645 388,858 1,168,431 1,390,042 9,787 (221,611)
Change in fair value due to:
Realization of cash flows(287,318)(297,778)(924,766)(1,135,515)10,460 210,749 
Change in valuation inputs and assumptions(A)
147,233 (115,986)573,213 (598,226)263,219 1,171,439 
Change in fair value of derivative instruments(41,365)8,624 (41,564)— (49,989)(41,564)
(Gain) loss realized(739)(15,150)(17,088)2,363 14,411 (19,451)
Gain (loss) on settlement of derivative instruments(13,434)2,307 (11,127)— (15,741)(11,127)
Servicing revenue, net$203,022 $(29,125)$747,099 $(341,336)$232,147 $1,088,435 

(A)The following table summarizes the components of servicing revenue, net related to changes in valuation inputs and assumptions:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Changes in interest and prepayment rates$140,736 $(227,002)$454,521 $(551,793)$367,738 $1,006,314 
Changes in discount rates— 113,305 113,305 9,245 (113,305)104,060 
Changes in other factors6,497 (2,289)5,387 (55,678)8,786 61,065 
Change in valuation and assumptions$147,233 $(115,986)$573,213 $(598,226)$263,219 $1,171,439 

The table below summarizes the unpaid principal balances of our MSRs and MSR Financing Receivables:
Unpaid Principal Balance
(dollars in millions)September 30, 2021June 30, 2021September 30, 2020QoQ ChangeYoY Change
GSE$374,945.6 $269,342.7 $329,633.7 $105,602.9 $45,311.9 
Non-Agency68,903.6 70,711.1 74,695.1 (1,807.5)(5,791.5)
Ginnie Mae105,975.4 58,509.6 57,290.6 47,465.8 48,684.8 
Total$549,824.6 $398,563.4 $461,619.4 $151,261.2 $88,205.2 

Three Months Endedmonths ended September 30, 20172021 compared to the three months ended SeptemberJune 30, 2016.2021.

Interest incomeServicing revenue, net increased by $115.3$232.1 million primarily attributabledriven by (i) a $197.5 million net change from negative to an increasepositive mark-to-market adjustments, and (ii) a $10.5 million net decrease in interest incomerealization of (i) $55.3cash flows consisting of a $50.3 million from an increasedecrease in the sizerealization of the Real Estate Securities portfoliocash flows related to MSRs held at June 30, 2021 and accelerated accretion on Real Estate Securities owned in Non-Agency RMBS trusts that were terminated upon the execution of calls, (ii) $31.7 million from Mortgage Servicing Rights Financing Receivables due to the PHH and Ocwen Transactions (Note 5 to our Condensed Consolidated Financial Statements), (iii) $29.4 million from Servicer Advance Investments, primarily due to a $46.5$39.8 million increase from HLSS Servicer Advance Investments driven by a retrospective adjustment resulting from a change in cash flow assumptions, and (iv) $17.7 million from an increase in the size of the Residential Mortgage Loans portfolio duerelated to the acquisition of loans throughCaliber. The positive mark-to-market adjustments of $147.2 million for the execution of calls and a purchase from a third-party. The increase was partially offset by (v) a $13.7 million decrease from Consumer Loan investmentsthree months ended September 30, 2021 were primarily driven by lower UPB, (vi) a $4.9 million decrease from Excess MSR investments attributable to a step upchanges in prepayment rates this quarter relative to the prior year, and (vii) a $0.2 million decrease in interest incomeassumptions related to recoveries from certain GNMA EBO servicer advances.prepayment rates.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.

Interest incomeServicing revenue, net increased by $412.3 million,$1.09 billion primarily attributable to an increase in interest income of (i) $186.7 million from Servicer Advance Investments, primarily due to a $218.0 million increase from HLSS Servicer Advance Investments driven by retrospective(i) a $1.12 billion net change from negative to positive mark-to-market adjustments resulting from a change in cash flow assumptions, (ii) $148.5 million from an increase in the size of Real Estate Securities portfolio and accelerated accretion on Real Estate Securities owned in Non-Agency RMBS trusts that were terminated upon the execution of calls, (iii) $48.1 million from Consumer Loans acquired as a result of the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements) on March 31, 2016, (iv) $34.3slower prepayment rates, lower delinquency rates, and a decrease in discount rates, and (ii)
86

a $210.7 million from Mortgage Servicing Rights Financing Receivables due to the PHH and Ocwen Transactions (Note 5 to our Condensed Consolidated Financial Statements), and (v) $27.6 million from the Residential Mortgage Loans portfolio due to the acquisitiondecrease in realization of loans through the executioncash flows as a result of calls.slower prepayment rates. The increase was partially offset by (vi)(iii) a $31.6$221.6 million decrease in servicing fee revenue and fees from Excess MSR investmentsportfolio runoff.

Interest Income

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Interest income decreased by $11.1 million quarter over quarter primarily driven by (i) a $45.5 million decrease in interest income attributable to a step upsmaller average agency bond portfolio for the third quarter due to sale of approximately $4.5 billion to fund the Caliber acquisition, partially offset by (ii) a $17.9 million increase from our operating businesses largely related to funded loans pending sale, including the impact from the Caliber acquisition during the third quarter of 2021, and (iii) a $14.4 million increase in prepayment rates relativeinterest income at our corporate segment related to commercial loans with an affiliate of our manager.

Nine months ended September 30, 2021 compared to the priornine months ended September 30, 2020.

Interest income decreased $28.9 million year and (vii)over year driven by (i) a $1.2$38.4 million decrease in interest income related to recoveriesa smaller average agency and non-agency bond portfolio, (ii) a $58.1 million decrease attributable to a decline in our loan portfolio and tightening of interest rates on residential mortgage loans and consumer loans, partially offset by (iii) a $53.2 million increase from certain GNMA EBO servicer advances.our operating businesses, including the impact from the Caliber acquisition during the third quarter of 2021, and (iv) a $14.4 million increase in interest income at our corporate segment related to commercial loans with an affiliate of our manager.


Gain on Originated Mortgage Loans, Held-for-Sale, Net

The following table provides information regarding Gain on Originated Mortgage Loans, Held-for-Sale, Net as a percentage of pull through adjusted lock volume, by channel:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020
Direct to Consumer3.99 %3.83 %4.02 %4.44 %
Retail / Joint Venture3.80 %4.81 %4.02 %3.70 %
Wholesale1.04 %0.95 %1.21 %2.29 %
Correspondent0.32 %0.25 %0.30 %0.66 %
1.61 %1.31 %1.47 %2.01 %

The following table provides loan production by channel:
Unpaid Principal Balance
Three Months EndedNine Months Ended
(in millions)September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Production by Channel
  Direct to Consumer$6,425 $6,404 $18,502 $8,571 $21 $9,931 
  Retail / Joint Venture5,556 1,007 7,613 2,789 4,549 4,824 
  Wholesale4,476 2,413 9,561 4,893 2,063 4,668 
  Correspondent18,017 13,656 49,491 21,494 4,361 27,997 
Total Production by Channel$34,474 $23,480 $85,167 $37,747 $10,994 $47,420 

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Gain on originated mortgage loans, held-for-sale, net increased $279.9 million primarily driven by the addition of the Caliber platform during the third quarter of 2021 and contributions from the higher margin Retail / Joint Venture channel. Gain on sale margin for the three months ended September 30, 2021 was 1.61%, 30 bps higher than 1.31% for the prior quarter. For the third
87

quarter of 2021, loan origination volume was $34.5 billion, up from $23.5 billion in the prior quarter. Production in all four channels increased quarter over quarter given origination contributions attributable to the acquisition of Caliber.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Gain on originated mortgage loans, held-for-sale, net increased primarily driven by higher volume across all channels as well as the addition of Caliber during the third quarter. For the first nine months of 2021, loan origination volume was $85.2 billion, up from $37.7 billion in the prior year.

Interest Expense


Three Months Endedmonths ended September 30, 20172021 compared to the three months ended SeptemberJune 30, 2016.2021.


Interest expense increased by $28.8$23.4 million quarter over quarter primarily attributable to increases of (i) $22.2a $24.9 million ofincrease in interest expense on repurchase agreementsattributable to the Origination segment (Newrez and financings on Real Estate Securities in which we made additional levered investments subsequent to September 30, 2016, (ii) $15.3 million of interest expense on MSRs and related servicer advances financing obtained subsequent to September 30, 2016, (iii) $9.3 million on Residential Mortgage Loans due to an increase in the underlying principal balance of the portfolio levered with repurchase agreements, and (iv) $6.2 million on debt collateralized by Excess MSRs issued subsequent to September 30, 2016. The increase wasCaliber), partially offset by (v) an $18.9(ii) a $4.3 million decrease in interest expense on financingsa smaller bond portfolio owned during the third quarter of 2021 related to Servicer Advance Investments duesales of agency bonds to debt extinguishment and refinancing subsequent to September 30, 2016, and (vi) $5.4 million on Consumer Loans due to a decrease infund the levered portfolio.Caliber acquisition.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.


Interest expense increased by $60.3decreased $108.4 million year over year primarily attributable to increases(i) a $102.6 million decrease related to a smaller portfolio of (i) $54.3 million of interest expense on repurchase agreements and financings on Real Estate Securitiesbonds owned in which we made additional levered investments subsequent to September 30, 2016,2021, (ii) $26.8 million of interest expense on MSRs and related servicer advances financing obtained subsequent to September 30, 2016, (iii) $17.2 million on debt collateralized by Excess MSRs issued subsequent to September 30, 2016, (iv) $14.2 million on Residential Mortgage Loans due to an increase in the underlying principal balance of the portfolio levered with repurchase agreements, and (v) $3.9 million on the Consumer Loan segment including the securitization notes recorded as a result of the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements) on March 31, 2016. The increase was partially offset by (vi) a $56.1$19.3 million decrease in interest expense on financings related to Servicer Advance Investments due to debt extinguishment and refinancing subsequent to September 30, 2016.



Other-Than-Temporary Impairment on Securities

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

The other-than-temporary impairment on securities decreased by $0.3 million during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily resulting from a decrease in fair values above their amortized cost basis on a decreased number of our Non-Agency RMBS as of September 30, 2017.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

The other-than-temporary impairment on securities increased by $0.9 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily resulting from a decrease in fair values below their amortized cost basis on an increased number of our Non-Agency RMBS as of September 30, 2017.

Valuation Provision (Reversal) on Loans and Real Estate Owned

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

The $8.4 million increase in the valuation and loss provision (reversal) onresidential mortgage loans and real estate owned resulted from (i) a $10.6 million increaseconsumer loans driven by decreases in impairment on Residential Mortgage Loansinterest rates and REO due primarily to impairment on certain non-performing loans with low performance partially offset by a reduction in impairment on REOs during the three months ended September 30, 2017, and (ii) a $3.8 million increase of reserve related to certain GNMA EBO servicer advance receivables,portfolio sizes, partially offset by (iii) a decrease of $6.0 million in consumer loan provision expense during the three months ended September 30, 2017 due to a reversal of impairment on certain purchased credit deteriorated loans and a reduction in net charge-offs on the Consumer Loan Companies during the three months ended September 30, 2017.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

The $23.5$13.5 million increase in the valuation and loss provision (reversal) on loans and real estate owned resulted from (i) consumer loan provisioninterest expense of $13.5 million on loans recorded as a result of the SpringCastle Transaction (Note 9related to our Condensed Consolidated Financial Statements) on March 31, 2016growing Origination business at Newrez and certain newly originated consumer loans acquired subsequent to September 30, 2016, (ii) a $7.0 million increase in impairment on certain non-performing loans with low performance and certain REOs with a decrease in home prices, and (iii) a $3.0 million increase of reserve related to certain GNMA EBO servicer advance receivables during the nine months ended September 30, 2017.Caliber.


Servicing Revenue, Net

The component of servicing revenue, net related to changes in valuation inputs and assumptions related to the following:
  Three Months Ended 
 September 30,		 Increase (Decrease) Nine Months Ended  
 September 30,		 Increase (Decrease)
  2017 2016 Amount 2017 2016 Amount
Changes in interest rates and prepayment rates $(41,445) $—
 $(41,445) $(61,271) $—
 $(61,271)
Changes in discount rates 50,257
 —
 50,257
 122,347
 —
 122,347
Changes in other factors (20,330) —
 (20,330) 16,389
 —
 16,389
Total $(11,518) $—
 $(11,518) $77,465
 $—
 $77,465

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

Servicing revenue, net increased $58.0 million during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 as a result of MSR acquisitions by our licensed servicer subsidiary, NRM, which closed subsequent to September 30, 2016 (Note 5 to our Condensed Consolidated Financial Statements). The increase was offset by negative mark-to-market adjustment of $11.5 million related to changes in valuation inputs and assumptions, which included a decrease in projected recapture rate.



Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Servicing revenue, net increased $269.5 million during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 as a result of MSR acquisitions by our licensed servicer subsidiary, NRM, which closed subsequent to September 30, 2016 (Note 5 to our Condensed Consolidated Financial Statements). $77.5 million of the increase was related to changes in valuation inputs and assumptions, primarily driven by a decrease in discount rates and an increase in the custodial earnings rate that caused the fair value of our MSRs to increase by approximately $122.3 million and $38.0 million, respectively.

Change in Fair Value of Investments in Excess Mortgage Servicing Rights

Changes in the fair value of investments in Excess MSRs related to the following:
  Three Months Ended 
 September 30,		 Increase (Decrease) Nine Months Ended  
 September 30,		 Increase (Decrease)
  2017 2016 Amount 2017 2016 Amount
Changes in interest rates and prepayment rates $(14,267) $(14,672) $405
 $(34,465) $(6,544) $(27,921)
Changes in discount rates —
 —
 —
 —
 —
 —
Changes in other factors (24) (2,388) 2,364
 1,815
 (17,853) 19,668
Total $(14,291) $(17,060) $2,769
 $(32,650) $(24,397) $(8,253)

Change in Fair Value of Investments in Excess Mortgage Servicing Rights, Equity Method Investees

Changes in the fair value of investments in Excess MSRs, equity method investees related to the following:
  Three Months Ended 
 September 30,		 Increase (Decrease) Nine Months Ended  
 September 30,		 Increase (Decrease)
  2017 2016 Amount 2017 2016 Amount
Changes in interest rates and prepayment rates $(1,823) $1,077
 $(2,900) $(1,683) $(1,526) $(157)
Changes in discount rates —
 —
 —
 —
 —
 —
Changes in other factors 3,877
 5,184
 (1,307) 7,739
 10,134
 (2,395)
Total $2,054
 $6,261
 $(4,207) $6,056
 $8,608
 $(2,552)

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

The positive mark-to-market adjustments during the three months ended September 30, 2017 were mainly driven by interest income net of expenses recorded at the investee level and other market factors, offset by an increase in prepayment speed projections, which totaled $3.9 million during the three months ended September 30, 2017, compared to $5.2 million during the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

The positive mark-to-market adjustments during the nine months ended September 30, 2017 were mainly driven by interest income net of expenses recorded at the investee level and other market factors, which totaled $7.7 million during the nine months ended September 30, 2017, compared to $10.1 million during the nine months ended September 30, 2016.


Change in Fair Value of Investments in Mortgage Servicing Rights Financing Receivable

The component of changes in the fair value of investments in mortgage servicing rights financing receivable related to changes in valuation inputs and assumptions related to the following:
  Three Months Ended 
 September 30,		 Increase (Decrease) Nine Months Ended  
 September 30,		 Increase (Decrease)
  2017 2016 Amount 2017 2016 Amount
Changes in interest rates and prepayment rates $(9,097) $—
 $(9,097) $(12,625) $—
 $(12,625)
Changes in discount rates 56,694
 —
 56,694
 65,997
 —
 65,997
Changes in other factors 41,518
 —
 41,518
 42,466
 —
 42,466
Total $89,115
 $—
 $89,115
 $95,838
 $—
 $95,838

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

The change in fair value of investments in mortgage servicing rights financing receivable of $70.2 million during the three months ended September 30, 2017 is due to the acquisition of mortgage servicing rights financing receivable as a result of the PHH Transaction and Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements), which are measured at fair value on a recurring basis. $89.1 million of the increase was related to changes in valuation inputs and assumptions, which was offset by $18.9 million of amortization of servicing rights. In addition to changes in discount rates, $45.7 million of the increase in fair value was driven by a change in expected cash flows associated with REO commissions, partially offset by a lower projected recapture rate related to the PHH portfolio.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

The change in fair value of investments in mortgage servicing rights financing receivable of $75.8 million during the nine months ended September 30, 2017 is due to the acquisition of mortgage servicing rights financing receivable as a result of the PHH Transaction and Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements), which are measured at fair value on a recurring basis. $95.8 million of the increase was related to changes in valuation inputs and assumptions, which was offset by $20.0 million of amortization of servicing rights. In addition to changes in discount rates, $45.7 million of the increase in fair value was driven by a change in expected cash flows associated with REO commissions, partially offset by a lower projected recapture rate related to the PHH portfolio.
Change in Fair Value of Investments in Servicer Advance Investments

Changes in the fair value of investments in Servicer Advance Investments related to the following:
  Three Months Ended 
 September 30,		 Increase (Decrease) Nine Months Ended  
 September 30,		 Increase (Decrease)
  2017 2016 Amount 2017 2016 Amount
Changes in interest rates and prepayment rates $(13,770) $8,060
 $(21,830) $(17,273) $(74,744) $57,471
Changes in discount rates (3,099) —
 (3,099) (157,903) 59,708
 (217,611)
Changes in other factors 27,810
 13,546
 14,264
 245,645
 19,364
 226,281
Total $10,941
 $21,606
 $(10,665) $70,469
 $4,328
 $66,141

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

The positive mark-to-market adjustments during the three months ended September 30, 2017 were mainly driven by changes in valuation inputs and assumptions related to the Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements) that caused fair value to increase by $41.5 million, partially offset by an increase in prepayment speed projections.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

The positive mark-to-market adjustments during the nine months ended September 30, 2017 were mainly driven by a change in valuation assumptions related to the HLSS portfolio. Primarily, we reduced our assumption related to the cost of subservicing in periods subsequent to the expiration of the related contract to reflect the current characteristics of, and market for, this investment.


This change in assumption resulted in a positive mark-to-market adjustment of $193.8 million. Changes in valuation inputs and assumptions related to the Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements) further increased the fair value by $41.5 million. The increase was partially offset by a negative mark-to-market adjustment of $157.9 million driven by a discount rate change related to the HLSS portfolio.
Gain on Consumer Loans Investment

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

Gain on consumer loans investment was a result of the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements) on March 31, 2016, triggering a change in accounting to income recognition based on the consolidated assets and liabilities rather than recognition of income based on the distributions in excess of basis for prior periods.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Gain on consumer loans investment decreased by $9.9 million as a result of the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements) on March 31, 2016, triggering a change in accounting to income recognition based on the consolidated assets and liabilities rather than recognition of income based on the distributions in excess of basis for prior periods.

Gain on Remeasurement of Consumer Loans Investment

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

Gain on remeasurement of consumer loans investment represents the remeasurement of New Residential’s previously held equity method investment in the Consumer Loan Companies as a result of obtaining a controlling financial interest through the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements).

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Gain on remeasurement of consumer loans investment of $71.3 million during the nine months ended September 30, 2016 represents the remeasurement of New Residential’s previously held equity method investment in the Consumer Loan Companies as a result of obtaining a controlling financial interest through the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements).

Gain (Loss) on Settlement of Investments, Net

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

Gain (loss) on settlement of investments increased by $12.7 million, primarily related to (i) increased gain on sale of real estate securities of $8.0 million, and (ii) $11.3 million realized gain related to the Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements), partially offset by (iii) increased loss on extinguishment of debt and write-off financing fees of $2.4 million, and (iv) $4.1 million change in gain on sale of REO to loss on sale of REO, during the three months ended September 30, 2017 compared to the three months ended September 30, 2016.



Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Gain (loss) on settlement of investments increased by $38.9 million, primarily related to (i) increased gain on sale of residential mortgage loans of $28.8 million, (ii) increased gain on sale of real estate securities of $14.5 million, (iii) $5.4 million decrease in loss on settlement of derivatives, and (iv) $11.3 million realized gain related to the Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements). This increase was partially offset by (v) increased loss on extinguishment of debt and write-off financing fees of $2.4 million, (vi) $12.4 million change in gain on sale of REO to loss on sale of REO, and (vii) $6.4 million increase in loss on liquidated residential mortgage loans, during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Earnings from Investments in Consumer Loans, Equity Method Investees

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

Earnings from investments in Consumer Loans, Equity Method Investees of $6.8 million during the three months ended September 30, 2017 represents earnings generated by our 25% member interest in LoanCo and WarrantCo (Note 9 to our Condensed Consolidated Financial Statements).
Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Earnings from investments in Consumer Loans, Equity Method Investees of $12.6 million during the nine months ended September 30, 2017 represents earnings generated by our 25% member interest in LoanCo and WarrantCo (Note 9 to our Condensed Consolidated Financial Statements).

Other Income (Loss), Net

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

Other income (loss), net decreased by $17.2 million, primarily attributable to (i) a $17.5 million decrease in unrealized gain on derivative instruments, (ii) a $2.7 million decrease in gain on transfers of EBO and reverse mortgage loans to HUD claim receivables, and (iii) a $2.8 million increase in REO expense. This decrease was partially offset by (iv) a $7.0 million gain on Ocwen common stock, during the three months ended September 30, 2017 compared to the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Other income (loss), net increased by $0.8 million, primarily attributable to (i) a $15.0 million decrease in unrealized loss on derivative instruments, (ii) an increased gain on transfer of loans to REO of $2.1 million, and (iii) a $7.0 million gain on Ocwen common stock. This increase was partially offset by (iv) a $10.4 million decrease in Ocwen downgrade reimbursement income, and (v) a $8.5 million increase in REO expense and servicer advance expenses, (vi) a $2.7 million decrease in gain on transfers of EBO and reverse mortgage loans to HUD claim receivables, and (vii) a $1.2 million increase in reserve on collapse holdback during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

General and Administrative Expenses

Three Months Ended September 30, 2017 compared to the three months ended September 30, 2016.

General and administrative expenses increased by $11.1 million primarily attributable to (i) an increase of $4.2 million in deal related expense primarily associated with the Ocwen Transaction (Note 5 to our Condensed Consolidated Financial Statements), (ii) a $2.6 million increase in other general and administrative expenses related to newly acquired Residential Mortgage Loans, (iii) a $1.6 million increase in custodian expense, (iv) a $0.9 million increase in professional fees related to legal, and (v) a $0.7 million increase in professional fees related to servicing compliance, during the three months ended September 30, 2017.

Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

General and administrative expenses increased by $19.7 million primarily attributable to (i) a $5.7 million increase in other general and administrative expenses related to newly acquired Residential Mortgage Loans, (ii) a $4.8 million increase in securitization fees, (iii) a $2.4 million increase in custodian expense, (iv) a $1.9 million increase in professional fees related to servicing compliance, (v) a $1.7 million increase in professional fees related to legal, and (vi) a $1.5 million increase in deal related expense, during the nine months ended September 30, 2017.



Management Fee to Affiliate


Three Months Endedmonths ended September 30, 20172021 compared to the three months ended SeptemberJune 30, 2016.2021.


Management fee to affiliate increased by $3.7$0.6 million as a result of increases to our gross equitycapital raises subsequent to SeptemberJune 30, 2016.2021.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.


Management fee to affiliate increased by $10.9$3.5 million as a result of increases to our gross equitycapital raises subsequent to September 30, 2016.2020.

88

Incentive Compensation to Affiliate

General and Administrative Expenses

General and Administrative Expenses consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Legal and professional$29,419 $18,587 $66,225 $63,798 $10,832 $2,427 
Loan origination52,481 44,916 137,642 59,462 7,565 78,180 
Occupancy18,612 10,221 39,183 26,195 8,391 12,988 
Subservicing74,156 77,960 234,599 277,367 (3,804)(42,768)
Loan servicing3,976 4,627 13,282 23,313 (651)(10,031)
Property and maintenance19,331 15,755 47,216 26,855 3,576 20,361 
Other miscellaneous general and administrative
47,096 33,602 109,097 69,949 13,494 39,148 
General and administrative expenses$245,071 $205,668 $647,244 $546,939 $39,403 $100,305 
Three Months Endedmonths ended September 30, 20172021 compared to the three months ended SeptemberJune 30, 2016.2021.

Incentive compensation to affiliateGeneral and administrative expenses increased by $12.4$39.4 million due to anquarter over quarter, this increase in our incentive compensation earnings measure resulting from the changes in the income and expense items described above, excluding any unrealized gains or losses from mark-to-market valuation changes on investments and debt, during the three months ended September 30, 2017 comparedwas primarily attributable to the three months ended September 30, 2016.Caliber acquisition which reflected an additional $14.1 million of loan origination expense, $13.8 million of occupancy/office expenses, $4.4 million of legal and professional fees, and $5.5 million of marketing expenses.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.

Incentive compensationGeneral and administrative expenses increased $100.3 million year over year. Of this increase, the Caliber acquisition contributed a total of $42.5 million of general and administrative during the third quarter, growth in Guardian Asset Management’s inspection and property management contracts contributed $20.3 million of the increase, and the remaining increase is attributed to affiliate increased by $58.9 million due to an increasegrowth in our incentive compensation earnings measure resulting from the changes in the incomeloan origination and expense items described above, excluding any unrealized gains or losses from mark-to-market valuation changes on investmentsservicing volumes which drove higher general and debt, duringadministrative expenses. For the nine months ended September 30, 20172021, our operating platform funded $85.2 billion in origination volume compared to $37.7 billion for the prior year. On the servicing side, we serviced $475.8 billion in UPB as of September 30, 2021 compared to $287.2 billion UPB of servicing volume as of September 30, 2020.

Compensation and Benefits

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Compensation and benefits increased $129.8 million quarter over quarter primarily driven by $141.8 million of payroll and benefits attributable to the Caliber acquisition in August 2021.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2016.2020.


Loan Servicing ExpenseCompensation and benefits increased $305.5 million year over year largely due to continued growth in headcount within our operating companies. As of September 30, 2021, headcount within our operating companies totaled 12,749 employees compared to 5,105 as of September 30, 2020. The completion of the Caliber acquisition in August 2021 added 7,039 employees and resulted in $141.8 million of incremental compensation and benefits for 2021 compared to the prior year.


89

Change in Fair Value of Investments

Change in Fair Value of Investments consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Excess MSRs$(4,837)$(4,211)$(13,666)$(11,773)$(626)$(1,893)
Excess MSRs, equity method investees(1,176)(568)1,421 (2,902)(608)4,323 
Servicer advance investments(1,662)(4,502)(6,535)431 2,840 (6,966)
Real estate and other securities5,538 156,792 (336,009)(531)(151,254)(335,478)
Residential mortgage loans(26,432)121,242 154,984 (108,306)(147,674)263,290 
Consumer loans held-for-investment(5,708)(1,626)(13,338)(4,446)(4,082)(8,892)
Derivative instruments45,389 (37,227)214,367 4,213 82,616 210,154 
Change in fair value of investments$11,112 $229,900 $1,224 $(123,314)$(218,788)$124,538 

Change in Fair Value of Excess MSRs

Change in Fair Value of Excess MSRs consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Changes in interest rates and prepayment rates$375 $(1,477)$4,435 $1,650 $1,852 $2,785 
Changes in discount rates— — — (365)— 365 
Changes in other factors(5,212)(2,734)(18,101)(13,058)(2,478)(5,043)
Change in fair value of Excess MSRs$(4,837)$(4,211)$(13,666)$(11,773)$(626)$(1,893)

Three Months Endedmonths ended September 30, 20172021 compared to the three months ended June 30, 2021.

The negative mark-to-market fair value adjustments during the three months ended September 30, 2016.

Loan2021 were mainly driven by increases in delinquency rates in our conventional, agency, and PLS excess mortgage servicing expense decreased by $0.5 million due to (i) a $1.8 million decrease in loan servicing expense on Consumer Loans, held for investment due the declining amount of UPB serviced, which was partiallyrights pools and reduced recapture rates, slightly offset by (ii) a $1.3 million increasedecreased prepayment speeds. The negative mark-to-market fair value adjustments during the three months ended June 30, 2021 were mainly driven by increases in servicing expense ondelinquency rates and reduced recapture rates. Additionally, decreased interest rates and increased prepayment speeds further drove the Residential Mortgage Loans due to an increase in the size of the portfolio serviced subsequent to September 30, 2016.negative marks.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.


LoanThe negative mark-to-market fair value adjustments during the nine months ended September 30, 2021 were mainly driven by increases in delinquency rates in our conventional, agency, and PLS excess mortgage servicing expense increased by $10.0 million due to (i) a $8.9 million increase of loan servicing expense on Consumer Loans, held for investment as a result of the SpringCastle Transaction (Note 9 to our Condensed Consolidated Financial Statements) on March 31, 2016,rights pools and (ii) a $1.4 million increase in servicing expense on the Residential Mortgage Loans,reduced recapture rates. This was partially offset by (iii) a $0.2 million decreasefavorable changes in servicing expense on Real Estate Securities.interest rates and prepayment speeds. The negative mark-to-market fair value adjustments during the nine months ended September 30, 2020 were mainly driven by increases in delinquency rates and higher discount rates. This was partially offset by increased interest rates and decreased prepayment speeds.


Subservicing ExpenseChange in Fair Value of Excess MSRs, Equity Method Investees


Change in Fair Value of Excess MSRs, Equity Method Investees consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Changes in interest rates and prepayment rates$31 $(377)$728 $(52)$408 $780 
Changes in discount rates— — — (82)— 82 
Changes in other factors(1,207)(191)693 (2,768)(1,016)3,461 
Total$(1,176)$(568)$1,421 $(2,902)$(608)$4,323 
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Three Months Endedmonths ended September 30, 20172021 compared to the three months ended SeptemberJune 30, 2016.2021.


Subservicing expense increased $49.8 millionThe negative mark-to-market fair value adjustments during the three months ended September 30, 2017 compared2021 were due to increases in delinquency rates in our conventional, agency, and PLS excess mortgage servicing rights pools and reduced recapture rates. The negative mark-to-market fair value adjustments during the three months ended SeptemberJune 30, 2016 as a result of transactions that closed subsequent to September 30, 2016 within our licensed servicer subsidiary, NRM (Note 5 to our Condensed Consolidated Financial Statements).2021 were mainly driven by

decreased interest rates and increased prepayment speeds.

Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.


Subservicing expense increased $123.4 millionThe positive mark-to-market fair value adjustments during the nine months ended September 30, 20172021 were mainly driven by favorable changes in interest rates and prepayment speeds. The negative mark-to market adjustments during the nine months ended September 30, 2020 were mainly driven by increasing delinquency rates and reduced recapture rates.

Change in Fair Value of Servicer Advance Investments

Changes in Fair Value of Servicer Advance Investments consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Changes in interest and prepayment rates$261 $(1,000)$(727)$(1,869)$1,261 $1,142 
Changes in discount rates— — — 2,219 — (2,219)
Changes in other factors(1,923)(3,502)(5,808)81 1,579 (5,889)
Total$(1,662)$(4,502)$(6,535)$431 $2,840 $(6,966)

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

The negative mark-to-market adjustments during the three months ended September 30, 2021 were driven by the Advance/UPB ratio which increased resulting in less advance recoveries. The negative mark-to-market adjustments during the three months ended June 30, 2021 were driven by increased prepayment speeds resulting in a decrease in the UPB for the loans underlying the advances. Additionally, during the second quarter of 2021, the advance to UPB ratio increased resulting in less advance recoveries

Nine months ended September 30, 2021 compared to the nine months ended September 30, 20162020.

The negative mark-to-market adjustments during the nine months ended September 30, 2021 were driven by increased prepayment speeds resulting in decreased UPB for the loans underlying the advances. Additionally, the Advance/UPB ratio increased as a result of transactions that closed subsequent tothe underlying loans under forbearance. This resulted in less advance recoveries which drove negative
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mark-to-market adjustments. The positive mark-to-market adjustments during the nine months ended September 30, 2016 within our licensed servicer subsidiary, NRM (Note 52020 were mainly driven by a decrease in the discount rates that caused the fair value to our Condensed Consolidated Financial Statements).increase.



Change in Fair Value of Real Estate and Other Securities

Income Tax Expense (Benefit)


Three Months Endedmonths ended September 30, 20172021 compared to the three months ended SeptemberJune 30, 2016.2021.

Income tax expense (benefit) increased by $11.7Change in fair value of investments in real estate securities decreased $151.3 million primarily driven by unfavorable changes in Agency valuation inputs including a slight increase in interest rates. These items were partially offset by favorable adjustments in Non-Agency securities due to (i) the increase in the net deferred tax expense resulting from changes in assumptions impacting interest incomelower projected prepayments and mark-to-market on Servicer Advance Investments and (ii) taxable income at NRM as a licensed mortgage servicer subsequent to September 30, 2016.credit default rates.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.

Change in fair value of investments in real estate securities decreased $335.5 million primarily driven by a decrease in observable prices of Agency securities due to higher interest rates.

Change in Fair Value of Residential Mortgage Loans

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Change in fair value of investments in residential mortgage loans decreased $147.7 million primarily due to (i) a $84.5 million decrease in valuation inputs and assumptions largely driven by an increase in interest rates at the end of the quarter and (ii) a $63.2 million increase in realization of gain through loan sales and securitizations, decreasing the unrealized gain position.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Change in fair value of investments in residential mortgage loans increased $263.3 million primarily due to (i) a $378.4 million increase related to changes in valuation inputs and assumptions attributable to favorable changes in estimates regarding the
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economic outlook, partially offset by (ii) a $115.1 million increase in realization of gain through loan sales and securitizations, decreasing unrealized gain position.

Change in Fair Value of Consumer Loans Held-for-Investment

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Change in fair value of consumer loans decreased $4.1 million primarily due to changes in inputs and assumptions, including higher prepayment rates and lower recoveries.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Change in fair value of consumer loans decreased $8.9 million primarily due to changes in inputs and assumptions, including higher prepayment rates.

Change in Fair Value of Derivative Instruments

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Change in fair value of derivative instruments increased $82.6 million on interest rate swaps due to favorable changes in inputs and assumptions driven by higher interest rates.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Change in fair value of derivative instruments increased $210.2 million on interest rate swaps due to favorable changes in inputs and assumptions driven by higher interest rates.

Gain (Loss) on Settlement of Investments, Net

Gain (Loss) on Settlement of Investments, Net consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Sale of real estate securities$(63,809)$(24,708)$(89,500)$(753,551)$(39,101)$664,051 
Sale of acquired residential mortgage loans66,807 19,198 116,404 (8,343)47,609 124,747 
Settlement of derivatives(73,978)(51,562)(152,913)(133,099)(22,416)(19,814)
Liquidated residential mortgage loans(6,497)(268)(5,868)2,546 (6,229)(8,414)
Sale of REO371 (239)(3,814)2,632 610 (6,446)
Extinguishment of debt— 89 83 (64,795)(89)64,878 
Other(21,211)(21,120)(53,311)(14,385)(91)(38,926)
$(98,317)$(78,610)$(188,919)$(968,995)$(19,707)$780,076 

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Loss on settlement of investments, net increased $19.7 million primarily due to (i) a $39.1 million increase in losses on Agency security sales during the third quarter, (ii) a $22.4 million increase in losses on derivatives, (iii) a decrease of $16.6 million on
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gains on MSR’s, partially offset by (iv) a $41.4 million increase in gains on mortgage loan sales related to the NPL sale at the beginning of the quarter, and (v) a $29.3 million decrease in losses on advance receivables at Newrez from the second quarter.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Loss on settlement of investments, net decreased $780.1 million primarily attributable to a large reduction in our Agency and Non-Agency RMBS portfolio in the first half of 2020 in order to generate liquidity and de-risk our balance sheet in response to the onset of COVID-19 related market factors. We realized significant losses due to the timing of the bond sales.

Other Income (Loss), Net

Other Income (Loss), Net consists of the following:
Three Months EndedNine Months Ended
September 30, 2021June 30, 2021September 30, 2021September 30, 2020QoQ ChangeYoY Change
Unrealized gain (loss) on secured notes and bonds payable$4,029 $5,638 $5,245 $535 $(1,609)$4,710 
Unrealized gain (loss) on contingent consideration(478)— (886)(5,949)(478)5,063 
Unrealized gain (loss) on equity investments10,546 (1,834)5,929 (52,413)12,380 58,342 
Gain (loss) on transfer of loans to REO(699)2,790 3,412 5,010 (3,489)(1,598)
Gain (loss) on transfer of loans to other assets(37)44 (14)(773)(81)759 
Gain (loss) on Ocwen common stock(489)1,725 1,050 221 (2,214)829 
Provision for servicing losses(3,347)(16,643)(26,148)(19,764)13,296 (6,384)
Bargain Purchase Gain3,497 — 3,497 — 3,497 3,497 
Rental and ancillary revenue19,072 14,195 39,094 17,851 4,877 21,243 
Property and maintenance revenue28,755 25,104 73,765 45,495 3,651 28,270 
Other income (loss)(1,583)(975)(25,248)(29,979)(608)4,731 
$59,266 $30,044 $79,696 $(39,766)$29,222 $119,462 

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Other income increased $29.2 million primarily due to (i) a $13.3 million decrease in provision for servicing losses at Newrez, (ii) a $10.6 million favorable mark-to-market adjustment on certain preferred stock and warrants carried at fair value, (iii) a $4.9 million increase in rental and ancillary revenue from single-family rental properties attributable to an increase in property purchases during the third quarter, (iv) a $3.7 million increase in property and maintenance revenue at Guardian Asset Management, and (v) a $3.5 million bargain purchase gain attributable to the Caliber acquisition.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Other income increased $119.5 million primarily due to (i) a $42.2 million reduction in the unrealized loss on an equity investment in a commercial redevelopment project, which was written down during the early part of 2020 and $10.2 million of lower unrealized losses on other equity investments throughout the year, (ii) a $28.3 million increase in property and maintenance revenue at Guardian Asset Management attributable to continued growth in operations, (iii) a $21.2 million increase in rental and related revenue from single-family rental properties attributable to continued property purchases, (iv) a $10.6 million favorable mark-to-market adjustment on certain preferred stock and warrants carried at fair value, (v) a $4.7 million increase in favorable change in unrealized gain on secured notes and bonds payable, (vi) a $5.1 million decrease in
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contingent consideration accounted for at fair value, (vii) a $3.5 million bargain purchase gain attributable to the Caliber acquisition, partially offset by (viii) a $6.3 million increase in provision for servicing losses at Newrez.

Provision (Reversal) for Credit Losses on Securities

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

The reversal for credit losses on securities increased $0.6 million driven by improved credit spreads on Non-Agency RMBS.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The reversal for credit losses on securities increased $20.2 million primarily due to an increase in fair values on Non-Agency RMBS purchased with existing credit impairment driven by continued improvements in macroeconomic forecasts and outlook.

Valuation and Credit Loss Provision (Reversal) on Loans and Real Estate Owned

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

The valuation and credit loss provision on loans and real estate owned increased $41.4 million driven by (i) a $38.0 million decrease in reversal of impairment driven by higher projected prepayment rates, and (ii) a $3.4 million increase of impairment on certain REOs.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The valuation and credit loss reversal on loans and real estate owned increased $161.1 million driven by (i) a $160.6 million increase in reversal of impairment on residential mortgage loans due to lower delinquency rates and improved performance, and (ii) a $0.5 million increase in reversal of impairment on certain REOs with an increase in home prices.

Income Tax Expense (Benefit)

Three months ended September 30, 2021 compared to the three months ended June 30, 2021.

Income tax expense (benefit) increased by $102.9$32.6 million, primarily duedriven by changes in the fair value of MSRs, loans, and swaps held within taxable entities.

Nine months ended September 30, 2021 compared to the increase innine months ended September 30, 2020.

Income tax expense increased $177.4 million. The tax benefit for the netprior year primarily reflected deferred tax expensebenefits resulting from changes in assumptions impacting interestthe fair value of loans and MSRs, partially offset by deferred tax expense generated from income in our servicing and mark-to-market on Servicer Advance Investments and other book to tax differences.origination business segments.


Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries

Three Months Endedmonths ended September 30, 20172021 compared to the three months ended June 30, 2021.

Noncontrolling interests in income of consolidated subsidiaries increased $1.1 million primarily due to (i) a $2.4 million of higher income within the Consumer Loan Companies, which are 46.5% owned by third parties, partially offset by (ii) $1.5 million of lower income recognized by third parties’ due to a reduction in ownership in Advance Purchaser LLC during the third quarter.

Nine months ended September 30, 2016.2021 compared to the nine months ended September 30, 2020.


Noncontrolling interests in income of consolidated subsidiaries decreased by $18.6$5.7 million primarily dueattributable to (i) a $17.6$4.2 million decrease in other’srelated to interest income and fair value adjustments at our Consumer Loan Companies, which are 46.5% owned by third parties, (ii) a $0.8 million increase related to Advance Purchaser LLC, which we own an 89.3% interest in, and (iii) a $0.8 million increase from the net income ofShelter JVs, driven by higher earnings from originations during 2021.

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Dividends on Preferred Stock

The table below summarizes preferred stock:
Dividends Declared Per Share and Amount(A)
Number of SharesThree Months EndedNine Months Ended September 30,
SeriesSeptember 30, 2021June 30, 2021September 30, 2020September 30, 2021June 30, 202120212020
Series A, 7.50% issued July 20196,210 6,210 6,210 $0.47 $2,911 $0.47 $2,911 $1.41 $8,733 $1.41 $8,733 
Series B, 7.125% issued August 201911,300 11,300 11,300 0.45 5,032 0.45 5,032 1.34 15,096 1.34 15,096 
Series C, 6.375% issued February 202016,100 16,100 16,100 0.40 6,415 0.40 6,415 1.20 19,245 1.20 16,109 
Series D, 7.00%, issued September 202118,600 — — 0.28 1,175 — — 0.28 1,175 — — 
Total52,210 33,610 33,610 $1.60 $15,533 $1.32 $14,358 $4.23 $44,249 $3.95 $39,938 
(A)The Series D dividends declared represents the Buyer as a result of a decrease in ownership from 54.2%amount accrued at September 30, 2021.

Three months ended September 30, 2021 compared to 27.2%, as well as a net decrease in interest income earned on the Buyer’s levered assets and in the change in fair value of the Buyer’s assets, during the three months ended SeptemberJune 30, 2017, and (ii) a $1.02021.

Dividends on preferred stock increased $1.2 million decreaseto $15.5 million due to the issuance of Preferred Series D shares in other’s interest in the net income of the Consumer Loan Companies as a result of a decrease in UPB and interest income generated, during the three months ended September 30, 2017.mid-September 2021.


Nine months ended September 30, 20172021 compared to the nine months ended September 30, 2016.2020.


Noncontrolling interests in income of consolidated subsidiaries decreased by $16.3Dividends on preferred stock increased $4.3 million primarilyto $44.2 million due to (i) a $23.0 million decreasethe issuance of Preferred Series D shares in other’s interest in the net income of the Buyer as a result of a decrease in ownership from 54.2% to 27.2%,mid-September 2021 as well as a net decrease in interest income earned on the Buyer’s levered assets and in the change in fair valueissuance of the Buyer’s assets, during the nine months ended September 30, 2017, which was partially offset by (ii) an increase of $6.7 million from the consolidation of the Consumer Loan Companies as part of the SpringCastle Transaction on March 31, 2016 (Note 9 to our Condensed Consolidated Financial Statements), which are 46.5% owned by third parties.Preferred Series C shares in mid-February 2020.


Other Comprehensive Income. See “—Accumulated Other Comprehensive Income (Loss)” below.


LIQUIDITY AND CAPITAL RESOURCES
 
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, and other general business needs. Additionally, to maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income. We note that a portion of this requirement may be able to be met in future years through stock dividends, rather than cash, subject to limitations based on the value of our stock.
 
Our primary sources of funds for liquidity generally consist ofare cash provided by operating activities (primarily income from our investments in Excess MSRs, MSRs, Servicer Advance Investments, RMBSservicing and loans)originations), sales of and repayments from our investments, potential debt financing sources, including securitizations, and the issuance of equity securities, when feasible and appropriate.

Our primary uses of funds are the payment of interest, management fees, servicing and subservicing expenses, outstanding commitments (including margins and mortgage loan originations), other operating expenses, repayment of borrowings and hedge obligations, dividends and funding of future servicer advances. The Company’s total cash and cash equivalents at September 30, 2021 was $1,366.7 million.

Our ability to utilize funds generated by the MSRs held in our licensed servicer subsidiary,subsidiaries, NRM, Newrez, and Caliber, is subject to and limited by certain regulatory requirements, regarding NRM’s liquidity.including maintaining liquidity, tangible net worth and ratio of capital to assets. Moreover, our ability to access and utilize cash generated from our regulated entities is an important part of our dividend paying ability. As of September 30, 2017,2021, approximately $132.4$1,166.4 million of our cash and cash equivalents waswere held at NRM, Newrez, and Caliber, of which $51.8$971.0 million waswere in excess of regulatory liquidity requirementsrequirements. NRM, Newrez, and available for deployment. Our primary uses of fundsCaliber are the payment of interest, management fees, incentive compensation, outstanding commitments (including margins) and other operating expenses, and the repayment of borrowings and hedge obligations, as well as dividends. Although we have other sources of liquidity, such as sales of and repayments from our investments, potential debt financing sources and the issuance of equity securities, there can be no assurance that we will generate sufficient cash or achieve investment results that will allow usexpected to make a specified level of cash distributions or year-to-year increases in cash distributions in the future. We have also committed to purchase certain future servicer advances. Currently, we expect that net recoveries of servicer advances will exceed net fundings for the foreseeable future. However, in the event of a significant economic downturn, net fundings could exceed net recoveries, which could have a materially adverse impact on ourmaintain compliance with applicable liquidity and could also result in additional expenses, primarily interest expense on any related financings of incremental advances.


net worth requirements throughout the year.
 
Currently, our primary sources of financing are secured financing agreements and secured notes and bonds payable, and repurchase agreements, although we have in the past and may in the future also pursue one or more other sources of financing such as securitizations and other secured and unsecured forms of borrowing. As of September 30, 2017,2021, we had outstanding repurchasesecured financing agreements with an aggregate face amount of approximately $7.9$22.8 billion to finance our investments. The financing of our entire RMBS portfolio, which generally has 3030- to 90 day90-day terms, is subject to margin calls. Under repurchasesecured financing agreements, we sell a security to a counterparty and concurrently agree to repurchase the same security at a later date for a higher specified price. The sale price represents financing proceeds and the difference between the sale and repurchase prices represents interest on the
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financing. The price at which the security is sold generally represents the market value of the security less a discount or “haircut,” which can range broadly, for example from 3% - 5% for Agency RMBS, 10% - 60% for Non-Agency RMBS, and 3% - 50% for residential mortgage loans.broadly. During the term of the repurchasesecured financing agreement, the counterparty holds the security as collateral. If the agreement is subject to margin calls, the counterparty monitors and calculates what it estimates to be the value of the collateral during the term of the agreement. If this value declines by more than a de minimis threshold, the counterparty could require us to post additional collateral (or “margin”) in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents. Furthermore, we may, from time to time, be a party to derivative agreements or financing arrangements that may be subject to margin calls based on the value of such instruments. In addition, $1.7$3.9 billion face amount of our MSR and Excess MSR financing is subject to mandatory monthly repayment to the extent that the outstanding balance exceeds the market value (as defined in the related agreement) of the financed asset multiplied by the contractual maximum loan-to-value ratio. We seek to maintain adequate cash reserves and other sources of available liquidity to meet any margin calls or related requirements resulting from decreases in value related to a reasonably possible (in our opinion) change in interest rates.

Our ability to obtain borrowings and to raise future equity capital is dependent on our ability to access borrowings and the capital markets on attractive terms. We continually monitor market conditions for financing opportunities and at any given time may be entering or pursuing one or more of the transactions described above. Our Manager’s senior management team has extensive long-term relationships with investment banks, brokerage firms and commercial banks, which we believe will enhance our ability to source and finance asset acquisitions on attractive terms and access borrowings and the capital markets at attractive levels.

Our ability to fund our operations, meet financial obligations and finance acquisitions may be impacted by our ability to secure and maintain our secured financing agreements, credit facilities and other financing arrangements. Because secured financing agreements and credit facilities are short-term commitments of capital, lender responses to market conditions may make it more difficult for us to renew or replace, on a continuous basis, our maturing short-term borrowings and have imposed, and may continue to impose, more onerous conditions when rolling such financings. If we are not able to renew our existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets.

While market volatility attributable to COVID-19 has subsided since its onset in 2020, it is possible that volatility may increase again, and our lenders may become unwilling or unable to provide us with financing and we could be forced to sell our assets at an inopportune time when prices are depressed. In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us. Our lenders also have revised and may continue to revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, including haircuts and requiring additional collateral in the form of cash, based on, among other factors, the regulatory environment and their management of actual and perceived risk. Moreover, the amount of financing we receive under our secured financing agreements will be directly related to our lenders’ valuation of our assets that cover the outstanding borrowings.

With respect to the next 12 months, we expect that our cash on hand combined with our cash flow provided by operations and our ability to roll our repurchasesecured financing agreements and servicer advance financings will be sufficient to satisfy our anticipated liquidity needs with respect to our current investment portfolio, including related financings, potential margin calls, mortgage loan origination and operating expenses. Our ability to roll over short-term borrowings is critical to our liquidity outlook. We have a significant amount of near-term maturities, which we expect to be able to refinance. If we cannot repay or refinance our debt on favorable terms, we will need to seek out other sources of liquidity. While it is inherently more difficult to forecast beyond the next 12 months, we currently expect to meet our long-term liquidity requirements through our cash on hand and, if needed, additional borrowings, proceeds received from repurchasesecured financing agreements and other financings, proceeds from equity offerings and the liquidation or refinancing of our assets.
 
These short-term and long-term expectations are forward-looking and subject to a number of uncertainties and assumptions, including those described under “—Market Considerations” as well as “Risk Factors.” If our assumptions about our liquidity prove to be incorrect, we could be subject to a shortfall in liquidity in the future, and such a shortfall may occur rapidly and with little or no notice, which could limit our ability to address the shortfall on a timely basis and could have a material adverse effect on our business.
 
Our cash flow provided by operations differs from our net income due to these primary factors:factors (i) the difference between (a) accretion and amortization and unrealized gains and losses recorded with respect to our investments and (b) cash received therefrom, (ii) unrealized gains and losses on our derivatives, and recorded impairments, if any, (iii) deferred taxes, and (iv) principal cash flows related to held-for-sale loans, which are characterized as operating cash flows under GAAP.

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In addition to the information referenced above, the following factors could affect our liquidity, access to capital resources and our capital obligations. As such, if their outcomes do not fall within our expectations, changes in these factors could negatively affect our liquidity.
 
•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.
•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.


Debt Obligations
 
The following table presents certain information regarding our debt obligations (dollars in thousands):
September 30, 2021December 31, 2020
Collateral
Debt Obligations/CollateralOutstanding Face Amount
Carrying Value(A)
Final Stated Maturity(B)
Weighted Average Funding CostWeighted Average Life (Years)Outstanding FaceAmortized Cost BasisCarrying ValueWeighted Average Life (Years)Carrying Value
Secured Financing Agreements(C)
Repurchase Agreements:
Warehouse Credit Facilities-Residential Mortgage Loans(F)
$12,923,024 $12,919,922 Oct-21 to Sep-252.01 %0.8$13,774,859 $13,775,860 $13,803,756 23.9$4,039,564 
Agency RMBS(D)
8,956,064 8,956,064 Oct-21 to Jan-220.16 %0.18,876,431 9,158,455 9,321,370 6.612,682,427 
Non-Agency RMBS(E)
723,486 723,486 Oct-21 to Dec-212.52 %0.013,927,317 905,336 987,803 3.3817,209 
Real Estate Owned(G)(H)
160,512 160,513 Oct-21 to Sep-252.91 %1.2N/A230,128 224,580 4.58,480 
Total Secured Financing Agreements22,763,086 22,759,985 1.31 %0.517,547,680
Secured Notes and Bonds Payable
Excess MSRs(I)
248,061 248,061  Aug-253.74 %3.984,829,582 281,142 348,080 6.3275,088 
MSRs(J)
3,629,810 3,617,850 Mar-22 to Jul-263.69 %3.2531,851,913 6,029,066 6,477,289 6.12,691,791
Servicer Advance Investments(K)
381,286 380,420 Apr-22 to Dec-221.30 %1.1408,085 453,442 472,004 6.0423,144 
Servicer Advances(K)
2,347,819 2,342,335 Nov-21 to Sep-232.34 %1.42,796,796 2,782,622 2,782,622 0.72,585,575 
Residential Mortgage Loans(L)
1,170,838 1,162,080 Sep-22 to Jul-432.10 %3.61,192,146 1,311,940 1,313,998 20.01,039,838 
Consumer Loans(M)
492,999 497,346 Sep-372.04 %3.6485,966 496,573 547,548 3.3628,759
Total Secured Notes and Bonds Payable8,270,813 8,248,092 2.87 %2.77,644,195 
Total/ Weighted Average$31,033,899 $31,008,077 1.72 %1.1$25,191,875 
(A)Net of deferred financing costs.
(B)All debt obligations with a stated maturity through the date of issuance were refinanced, extended or repaid.
(C)These secured financing agreements had approximately $65.7 million of associated accrued interest payable as of September 30, 2021.
(D)All Agency RMBS repurchase agreements have a fixed rate. Collateral carrying value includes $341.8 million margin receivable.
(E)All Non-Agency RMBS secured financing agreements have LIBOR-based floating interest rates. This also includes repurchase agreements and related collateral of $12.3 million and $16.5 million, respectively, on retained bonds collateralized by Agency MSRs. Collateral carrying value includes $2.4 million margin receivable.
(F)Includes $266.4 million of repurchase agreements which bear interest at a fixed rate of 4.0%. All remaining repurchase agreements have LIBOR-based floating interest rates.
(G)All repurchase agreements have LIBOR-based floating interest rates.
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  September 30, 2017
            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)
Repurchase Agreements(C)
                  
Agency RMBS(D)
 $1,846,934
 $1,846,934
 Oct-17 to Nov-17 1.35% 0.1 $1,845,992
 $1,905,003
 $1,907,360
 0.3
Non-Agency RMBS (E)
 4,316,544
 4,316,544
 Oct-17 to Jan-18 2.76% 0.1 11,050,796
 5,024,799
 5,404,713
 7.7
Residential Mortgage Loans(F)
 1,584,033
 1,581,980
 Oct-17 to Feb-19 3.75% 0.3 2,136,065
 1,907,212
 1,890,819
 4.3
Real Estate Owned(G)(H)
 102,703
 102,570
 Oct-17 to Feb-19 3.57% 0.5 N/A
 N/A
 145,939
 N/A
Total Repurchase Agreements 7,850,214
 7,848,028
   2.64% 0.1        
Notes and Bonds Payable                  
Secured Corporate Notes(I)
 583,686
 583,415
 Jun-19 to Jul-22 4.98% 2.9 263,232,259
 1,085,585
 1,212,791
 5.9
MSRs(J)
 1,097,085
 1,096,380
 Feb-18 to Apr-22 5.28% 2.3 223,999,150
 1,949,608
 2,145,609
 6.2
Servicer Advances(K)
 4,081,010
 4,073,283
 Nov-17 to Dec-21 3.29% 2.2 4,297,775
 4,591,210
 4,680,637
 4.5
Residential Mortgage Loans(L)
 143,207
 143,207
 Oct-17 to Apr-20 3.61% 2.5 234,686
 184,639
 184,639
 7.9
Consumer Loans(M)
 1,340,943
 1,337,708
 Dec-21 to Mar-24 3.35% 3.2 1,472,792
 1,473,353
 1,467,752
 3.5
Receivable from government agency(L)
 2,974
 2,974
 Oct-17 3.78% 1.1 N/A
 N/A
 2,792
 N/A
Total Notes and Bonds Payable 7,248,905
 7,236,967
   3.75% 2.5        
Total/ Weighted Average $15,099,119
 $15,084,995
   3.17% 1.3        
(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 as well as $152.6 million of financing collateralized by a portion of our single family rental portfolio.
(A)Net of deferred financing costs.
(B)All debt obligations with a stated maturity of October 2017 were refinanced, extended or repaid.
(C)These repurchase agreements had approximately $18.4 million of associated accrued interest payable as of September 30, 2017.
(D)All of the Agency RMBS repurchase agreements have a fixed rate. Collateral amounts include approximately $1.8 billion of related trade and other receivables.
(E)All of the Non-Agency RMBS repurchase agreements have LIBOR-based floating interest rates. This includes repurchase agreements of $160.3 million on retained servicer advance and consumer loan bonds.
(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 $213.7 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.75%, and includes $370.0 million of corporate loans which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.75%. The outstanding face amount of the collateral represents the UPB of our residential mortgage loans underlying our Excess MSRs that secure these notes.
(J)Includes $290.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.25%, $232.9 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.75%, $74.0 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.50%, and $500.2 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 4.00%. The outstanding face amount of the collateral represents the UPB of our residential mortgage loans underlying our MSRs and mortgage servicing rights financing receivable that secure these notes.

(I)Includes $248.1 million of corporate loans which bear interest at a fixed rate of 3.7%.

(J)Includes $1.3 billion 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 2.8% to 4.5%; $99.9 million of MSR notes which bear interest equal to the sum of (i) a floating rate index equal to one-month LIBOR and (ii) a margin of 3.9%; and $2.2 billion of capital markets notes with fixed interest rates ranging 3.0% to 5.4%. The outstanding face amount of the collateral represents the UPB of the residential mortgage loans underlying the MSRs and MSR Financing Receivables that secure these notes.
(K)$3.8 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 1.9% to 2.4%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and mortgage servicing rights financing receivables owned by NRM.
(L)Represents: (i) a $10.8 million note payable to Nationstar that bears interest equal to one-month LIBOR plus 2.88% and (ii) $135.4 million of asset-backed notes held by third parties which bear interest equal to 3.60%.
(M)Includes the SpringCastle debt, which is comprised of the following classes of asset-backed notes held by third parties: $1.0 billion UPB of Class A notes with a coupon of 3.05% and a stated maturity date in November 2023; $210.8 million UPB of Class B notes with a coupon of 4.10% and a stated maturity date in March 2024; $18.3 million UPB of Class C-1 notes with a coupon of 5.63% and a stated maturity date in March 2024; $18.3 million UPB of Class C-2 notes with a coupon of 5.63% and a stated maturity date in March 2024. Also includes a $86.3 million face amount note collateralized by newly originated consumer loans which bears interest equal to 4.00%.

(K)$1.8 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 1.1% to 1.9%. Collateral includes Servicer Advance Investments, as well as servicer advances receivable related to the mortgage servicing rights and MSR financing receivables owned by NRM.
(L)Represents (i) a $5.8 million note payable to Mr. Cooper which includes a $1.6 million receivable from government agency and bears interest equal to one-month LIBOR plus 2.9%, (ii) $30.4 million face amount of SAFT 2013-1 mortgage-backed securities issued with a fixed interest rate of 3.8% (see Note 12 for fair value details), (iii) $46.5 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.6% (see Note 12 for fair value details), (iv) $232.2 million of bonds held by third parties which bear interest at a fixed rate ranging from 3.6% to 5.0%, (v) a $105.8 million note payable collateralized by SFR with a fixed interest rate of 2.75%, and (vi) $750.0 million securitization backed by a revolving warehouse facility to finance newly originated first-lien, fixed- and adjustable-rate mortgage loans which bears interest equal to one-month LIBOR plus 1.13% (refer to Note 13 for further discussion).
(M)Includes the SpringCastle debt, which is primarily composed of the following classes of asset-backed notes held by third parties: $440.0 million UPB of Class A notes with a coupon of 2.0% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.7% and a stated maturity date in September 2037 (collectively, “SCFT 2020-A”).

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


We have margin exposure on $7.9$22.8 billion of repurchase agreements. To the extent that the value of the collateral underlying these repurchase agreements declines, we may be required to post margin, which could significantly impact our liquidity.


The following table provides additional information regarding our short-term borrowings (dollars in thousands):
Nine Months Ended September 30, 2021
Outstanding
Balance at
September 30, 2021
Average Daily Amount Outstanding(A)
Maximum Amount OutstandingWeighted Average Daily Interest Rate
Secured Financing Agreements
Agency RMBS$8,956,064 $12,786,907 $18,667,907 0.19 %
Non-Agency RMBS723,486 748,301 1,300,470 3.17 %
Residential mortgage loans8,922,426 9,055,124 11,608,298 1.90 %
Real estate owned6,006 9,923 24,133 2.65 %
Secured Notes and Bonds Payable
MSRs366,360 215,328 716,360 3.39 %
Servicer advances744,193 643,959 928,259 1.94 %
Residential mortgage loans5,834 5,821 5,888 3.06 %
Total/weighted average$19,724,369 $23,465,363 $33,251,315 1.20 %
(A)Represents the average for the period the debt was outstanding.

99

   Nine Months Ended September 30, 2017
 
Outstanding
Balance at
September 30, 2017
 
Average Daily Amount Outstanding(A)
 Maximum Amount Outstanding Weighted Average Daily Interest Rate
Repurchase Agreements       
Agency RMBS$1,846,934
 $2,133,048
 $2,727,309
 1.09%
Non-Agency RMBS4,316,544
 3,625,930
 4,352,060
 2.62%
Residential Mortgage Loans1,583,458
 993,362
 1,727,637
 3.63%
Real Estate Owned102,638
 83,698
 163,264
 3.58%
Notes and Bonds Payable       
Secured Corporate Notes—
 218,694
 220,000
 5.51%
MSRs596,898
 432,560
 596,898
 5.15%
Servicer Advances249,598
 284,252
 646,067
 3.01%
Residential Mortgage Loans7,831
 7,836
 8,819
 3.77%
Real Estate Owned2,974
 2,672
 3,136
 3.78%
Total/Weighted Average$8,706,875
 $7,782,052
 

 2.68%
Average Daily Amount Outstanding(A)
Three Months Ended
September 30, 2021June 30, 2021December 31, 2020September 30, 2020
Secured Financing Agreements
Agency RMBS$10,098,123 $15,169,877 $13,833,811 $11,391,397 
Non-Agency RMBS715,802 724,014 806,260 447,824 
Residential mortgage loans4,879,365 4,622,809 4,552,293 3,655,906 
Real estate owned9,923 19,294 2,282 2,581 
(A)Represents the average for the period the debt was outstanding.

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

 
Average Daily Amount Outstanding(A)
 Three Months Ended 
December 31, 2016		 Three Months Ended
March 31, 2017		 Three Months Ended
June 30, 2017		 Three Months Ended
September 30, 2017
Repurchase Agreements       
Agency RMBS$1,530,739
 $1,905,559
 2,531,373
 1,961,597
Non-Agency RMBS2,653,867
 2,891,179
 3,713,734
 4,319,758
Residential Mortgage Loans578,532
 785,283
 1,020,082
 1,170,488
Real Estate Owned60,494
 92,169
 83,235
 75,870
Consumer Loans30,565
 —
 —
 —
Corporate Debt

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



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


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

In conjunction with the issuance of the 2020 Term Loan, we issued warrants providing the lenders with the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of our common stock in the aggregate (the “2020 Warrants”). The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution provisions): approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share. As of September 30, 2021, the weighted average exercise price was $6.58 per share.

On September 16, 2020, we, as borrower, completed a private offering of $550.0 million aggregate principal amount of 6.250% senior unsecured notes due 2020 (the “2025 Senior Notes”). Interest on the 2025 Senior Notes accrue at the rate of 6.250% per annum with interest payable semi-annually in arrears on each April 15 and October 15, commencing on April 15, 2021. Net proceeds from the offering were approximately $544.5 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by us. We used the net proceeds from the offering, together with cash on hand, to prepay and retire our then-existing 2020 Term Loan and to pay related fees and expenses. As a result, we recorded a $61.1 million loss on extinguishment of debt, representing a write-off of unamortized debt issuance costs and original issue discount.

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

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

For additional information on our debt activities, see Note 11 to our Condensed Consolidated Financial Statements.


100

Maturities

Our debt obligations as of September 30, 2017,2021, as summarized in Note 11 to our Condensed Consolidated Financial Statements, had contractual maturities as follows (in thousands):
Year Ending
Nonrecourse(A)
Recourse(B)
Total
October 1 through December 31, 2021$— $13,742,872 $13,742,872 
20221,432,049 6,338,673 7,770,722 
20231,365,913 3,245,451 4,611,364 
2024750,000 952,951 1,702,951 
2025232,200 2,141,348 2,373,548 
2026 and thereafter569,976 812,466 1,382,442 
$4,350,138 $27,233,761 $31,583,899 
Year 
Nonrecourse(A)
 
Recourse(B)
 Total
October 1 through December 31, 2017 $185,907
 $7,624,943
 $7,810,850
2018 829,678
 832,334
 1,662,012
2019 1,551,725
 370,639
 1,922,364
2020 511,622
 —
 511,622
2021 1,223,797
 —
 1,223,797
2022 and thereafter 1,254,602
 713,872
 1,968,474
  $5,557,331
 $9,541,788
 $15,099,119
(A)Includes secured notes and bonds payable of $4.4 billion.

(B)Includes secured financing agreements and secured notes and bonds payable of $22.8 billion and $4.4 billion, respectively.
(A)Includes repurchase agreements and notes and bonds payable of $0.0 million and $5,557.0 million, respectively.
(B)Includes repurchase agreements and notes and bonds payable of $7,850.0 million and $1,692.0 million, respectively.


The weighted average differences between the fair value of the assets and the face amount of available financing for the Agency RMBS repurchase agreements (including amounts related to Trades Receivable) and Non-Agency RMBS repurchase agreements were 3.2%3.9% and 20.1%27%, respectively, and for Residential Mortgage Loansresidential mortgage loans and Real Estate OwnedREO were 16.2%6% and 29.6%29%, respectively, during the nine months ended September 30, 2017.2021.


Borrowing Capacity

The following table represents our borrowing capacity as of September 30, 20172021 (in thousands):
Debt Obligations/ CollateralBorrowing CapacityBalance Outstanding
Available Financing(A)
Secured Financing Agreements
Residential mortgage loans and REO$4,379,092 $1,999,295 $2,379,797 
New loan origination21,103,010 11,834,240 9,268,770 
Secured Notes and Bonds Payable
Excess MSRs286,380 248,061 38,319 
MSRs4,685,450 3,629,810 1,055,640 
Servicer advances4,554,990 2,729,105 1,825,885 
Residential mortgage loans200,000 105,825 94,175 
$35,208,922 $20,546,336 $14,662,586 
Debt Obligations/ Collateral Collateral Type Borrowing Capacity Balance Outstanding Available Financing
Repurchase Agreements        
Residential Mortgage Loans Residential mortgage loans and REO $2,890,000
 $1,686,736
 $1,203,264
Notes and Bonds Payable        
Secured Corporate Loans Excess MSRs 750,000
 370,000
 380,000
MSRs MSRs 700,000
 596,898
 103,102
Servicer Advances(A)
 Servicer advances 2,339,192
 1,474,512
 864,680
Consumer Loans Consumer loans 150,000
 86,343
 63,657
    $6,829,192
 $4,214,489
 $2,614,703
(A)Although available financing is uncommitted, 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.
(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 0.1% fee on the unused borrowing capacity. Excludes borrowing capacity and outstanding debt for retained Non-Agency bonds, collateralized by servicer advances with a current face amount of $93.5 million.


Covenants
 
Certain of the debt obligations are subject to customary loan covenants and event of default provisions, including event of default provisions triggered by certain specified declines in our equity or failure to maintain a specified tangible net worth, liquidity, or indebtedness to tangible net worth ratio. We were in compliance with all of our debt covenants as of September 30, 2017.2021.
 


Stockholders’ Equity

Preferred Stock

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series.
101

Dividends Declared per Share
Number of SharesThree Months Ended
September 30,		Nine Months Ended
September 30,
SeriesSeptember 30, 2021December 31, 2020
Liquidation Preference(A)
Issuance Discount
Carrying Value(B)
2021202020212020
Series A, 7.50% issued July 2019(C)
6,210 6,210 $155,250 3.15 %$150,026 $0.47 $0.47 $1.41 $1.41 
Series B, 7.125% issued August 2019(C)
11,300 11,300 282,500 3.15 %273,418 0.45 0.45 1.34 1.34 
Series C, 6.375% issued February 2020(C)
16,100 16,100 402,500 3.15 %389,548 0.40 0.40 1.20 1.20 
Series D, 7.00%, issued September 2021(D)
18,600 — 465,000 3.15 %449,506 0.28 — 0.28 — 
Total52,210 33,610 $1,305,250 $1,262,498 $1.60 $1.32 $4.23 $3.95 
(A)Each series has a liquidation preference or par value of $25.00 per share.
(B)Carrying value reflects par value less discount and issuance costs.
(C)Fixed-to-floating rate cumulative redeemable preferred.
(D)Fixed-rate reset cumulative redeemable preferred.

Our Series A, Series B, Series C, and Series D rank senior to all classes or series of our common stock and to all other equity securities issued by us that expressly indicate are subordinated to the Series A, Series B, Series C, and Series D with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up. Our Series A, Series B, Series C, and Series D have no stated maturity, are not subject to any sinking fund or mandatory redemption and rank on parity with each other. Under certain circumstances upon a change of control, our Series A, Series B, Series C, and Series D are convertible to shares of our common stock.

From and including the date of original issue, July 2, 2019, August 15, 2019, February 14, 2020, and September 17, 2021 but excluding August 15, 2024, February 15, 2025, and November 15, 2026, holders of shares of our Series A, Series B, Series C, and Series D are entitled to receive cumulative cash dividends at a rate of 7.50%, 7.125%, 6.375%, and 7.00% per annum of the $25.00 liquidation preference per share (equivalent to $1.875, $1.781, $1.594, and $1.750 per annum per share), respectively, and from and including August 15, 2024 and February 15, 2025, at a floating rate per annum equal to the three-month LIBOR plus a spread of 5.802%, 5.640%, and 4.969% per annum, for our Series A, Series B, and Series C, respectively. Holders of shares of our Series D, from and including November 15, 2026, are entitled to receive cumulative cash dividends based on the five-year treasury rate plus a spread of 6.223%. Dividends for the Series A, Series B, Series C, and Series D are payable quarterly in arrears on or about the 15th day of each February, May, August and November.

The Series A and Series B will not be redeemable before August 15, 2024, the Series C will not be redeemable before February 15, 2025, and the Series D will not be redeemable before November 15, 2026 except under certain limited circumstances intended to preserve our qualification as a REIT for U.S. federal income tax purposes and except upon the occurrence of a Change of Control (as defined in the Certificate of Designations). On or after August 15, 2024 for the Series A and Series B, February 15, 2025 for the Series C, and November 15, 2026 for the Series D we may, at our option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A, Series B, Series C, and Series D in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the redemption date, without interest.
Common Stock
 
Approximately 2.4 million shares of our common stock were held by Fortress, through its affiliates, and its principals as of September 30, 2017.2021.

AsOn February 16, 2021, we announced that our board of September 30, 2017,directors had authorized the repurchase of up to $200.0 million of our outstanding options hadcommon stock through December 31, 2021. Repurchases may be made at any time and from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act, by means of one or more tender offers, or otherwise, in each case, as permitted by securities laws and other legal and contractual requirements. The amount and timing of the purchases will depend on a weighted average exercisenumber of factors including the price and availability of $14.74. Our outstanding optionsour shares, trading volume, capital availability, our performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time. No share repurchases have been made as of September 30, 2017 are summarized as follows:the filing of this report. Repurchases may impact our financial results, including fees paid to our Manager.


Held by the Manager16,128,730
Issued to the Manager and subsequently transferred to certain of the Manager’s employees2,367,458
Issued to the independent directors6,000
Total18,502,188

In February 2017, New Residential issued 56.5 millionOn April 14, 2021, we priced our underwritten public offering of 45,000,000 shares of its common stock inat a public offering price of $10.10 per share. In connection with the offering, we granted the underwriters an option for a period of 30 days to purchase up to an additional 6,750,000 shares of common stock at a price of $10.10 per share. On April 16, 2021, the underwriters exercised their option, in part, to the publicpurchase an additional 6,725,000 shares of $15.00 per share for net proceeds of approximately $834.5 million. One of New Residential’s executive officers participated in thiscommon stock. The offering and purchased 18,600 shares at the public offering price.closed
102

on April 19, 2021. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residentialus, we granted options to the Manager relating to 5.75.2 million shares of New Residential’s common stock at $10.10 per share. We used the publicnet proceeds of approximately $512.0 million from the offering, along with cash on hand and other sources of liquidity, to finance the Caliber acquisition.

On May 19, 2021, we entered into a Distribution Agreement to sell shares of our common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price which had a fair value of approximately $8.1up to $500.0 million, as offrom time to time, through an “at-the-market” equity offering program (the “ATM Program”). No share issuances were made during 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.

Accumulated Other Comprehensive Income (Loss)
During the ninethree months ended September 30, 2017,2021.

On September 14, 2021, we priced our accumulated other comprehensive income (loss) changed dueunderwritten public offering of 17,000,000 of our 7.00% fixed-rate reset series D cumulative redeemable preferred stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, we granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for us, we granted options to the following factors (in thousands):Manager relating to approximately 1.9 million shares of our common stock at $10.89 per share.

 Total Accumulated Other Comprehensive Income
Accumulated other comprehensive income, December 31, 2016$126,363
Net unrealized gain (loss) on securities277,805
Reclassification of net realized (gain) loss on securities into earnings(20,856)
Accumulated other comprehensive income (loss), September 30, 2017$383,312
Our GAAP equity changes as our real estate securities portfolio is marked to market each quarter, among other factors. The primary causesAs of mark to market changes are changes in interest rates and credit spreads. During the nine months ended September 30, 2017, we recorded unrealized gains on2021, our real estate securities primarily caused by performance, liquidity and other factors related specifically to certain investments, coupled withoutstanding options had a net tighteningweighted average exercise price of credit spreads. We recorded OTTI charges$14.15. Our outstanding options as of $8.7 million with respect to real estate securities and realized gains of $29.6 million on sales of real estate securities.September 30, 2021 were summarized as follows:

See “—Market Considerations” above for a further discussion of recent trends and events affecting our unrealized gains and losses, as well as our liquidity.
Held by the Manager18,700,175 
Issued to the Manager and subsequently assigned to certain of the Manager’s employees2,753,980 
Issued to the independent directors6,000 
Total21,460,155 



Common Dividends
 
We are organized and intend to conduct our operations to qualify as a REIT for U.S. federal income tax purposes. We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make regular quarterly distributions of our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our repurchasesecured financing agreements and other debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets or raise capital to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
 
We make distributions based on a number of factors, including an estimate of taxable earnings per common share. Dividends distributed and taxable and GAAP earnings will typically differ due to items such as fair value adjustments, differences in premium amortization and discount accretion, other differences in method of accounting, non-deductible general and administrative expenses, taxable income arising from certain modifications of debt instruments and investments held in TRSs. Our quarterly dividend per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share.

We will continue to monitor market conditions and the potential impact the ongoing volatility and uncertainty may have on our business. Our board of directors will continue to evaluate the payment of dividends as market conditions evolve, and no definitive determination has been made at this time. While the terms and timing of the approval and declaration of cash dividends, if any, on shares of our capital stock is at the sole discretion of our board of directors and we cannot predict how market conditions may evolve, we intend to distribute to our stockholders an amount equal to at least 90% of our REIT taxable income determined before applying the deduction for dividends paid and by excluding net capital gains consistent with our intention to maintain our qualification as a REIT under the Code.

The table below summarize common dividends declared for the periods presented:
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Common Dividends Declared for the Period Ended Paid/Payable Amount Per Share
December 31, 2016 January 2017 $0.46
March 31, 2017 April 2017 $0.48
June 30, 2017 July 2017 $0.50
September 30, 2017 October 2017 $0.50
Common Dividends Declared for the Period EndedPaid/PayableAmount Per Share
June 30, 2020July 2020$0.10 
September 30, 2020October 20200.15 
December 31, 2020January 20210.20 
March 31, 2021April 20210.20 
June 30, 2021July 20210.20 
September 30, 2021October 20210.25 
 
Cash Flow
 
Operating Activities


Net cash flows provided byused in operating activities decreased approximately $1.1$2.6 billion for the nine months ended September 30, 20172021 as compared to the nine months ended September 30, 2016.2020. Operating cash flows for the nine months ended September 30, 20172021 primarily consisted of proceeds from sales and principal repayments of purchased residential mortgage loans, held-for-sale of $3.1$89.7 billion, servicing fees received of $297.8$1.1 billion, net recoveries of servicer advances receivable of $303.8 million, collections on receivables and other assets of $36.4 million, net interest income received of $426.5 million, and distributions of earnings from equity method investees of $15.3$272.7 million. Operating cash outflows primarily consisted of purchases of residential mortgage loans, held-for-sale of $4.1$5.8 billion, incentive compensation andoriginations of $84.6 billion, management fees paid to the Manager of $82.6$69.4 million, net funding on servicer advances receivable of $12.9 million,income taxes paid of $5.0$20.7 million, subservicing fees paid of $75.9$235.2 million and other outflows of approximately $106.9 million that primarily consisted of$1.4 billion including general and administrative costs, compensation and benefits, and loan servicing fees. The $748.8 million net proceeds on residential mortgage loans, held for sale, were primarily used to pay down debt facilities classified in financing activities below.
 
Investing Activities
 
Cash flows used inprovided by (used in) investing activities were $1.6$2.8 billion for the nine months ended September 30, 2017.2021. Investing activities consisted primarily of the acquisition of MSRs, Excess MSRs, real estate securities, and loans, and the funding of servicer advances, the Caliber acquisition, net of proceeds from the sale of real estate securities, principal repayments from Servicer Advance Investments, MSRs, real estate securities, and loans as well as proceeds from the sale of real estate securities, loans and REO, and derivative cash flows.loans.
 
Financing Activities

Cash flows provided by (used in) financing activities were approximately $2.2$(1.6) billion during the nine months ended September 30, 2017.2021. Financing activities consisted primarily of borrowings net of repayments under debt obligations, margin deposits net returns of margin under secured financing agreements and derivatives, equity offerings, capital contributions net of distributions from noncontrolling interests in the equity of consolidated subsidiaries, and payment of dividends.



INTEREST RATE, CREDIT AND SPREAD RISK
 
We are subject to interest rate, credit and spread risk with respect to our investments. These risks are further described in “Quantitative and Qualitative Disclosures About Market Risk.”




OFF-BALANCE SHEET ARRANGEMENTS
 
We have material off-balance sheet arrangements related to our non-consolidated securitizations of residential mortgage loans treated as sales in which we retained certain interests. We believe that these off-balance sheet structures presented the most efficient and least expensive form of financing for these assets at the time they were entered and represented the most common market-accepted method for financing such assets. Our exposure to credit losses related to these non-recourse, off-balance sheet financings is limited to $400.8 million.$1.0 billion. As of September 30, 2017,2021, there was $4,701.9 million$11.4 billion in total outstanding unpaid principal balance of residential mortgage loans underlying such securitization trusts that represent off-balance sheet financings.

As described in Note 9 to our condensed consolidated financial statements, we have a co-investment in a portfolio of consumer loans held through an entity (“LoanCo”) which we account for under the equity method. LoanCo had outstanding debt of $149.2 million as of August 31, 2017. We have not guaranteed this debt.


We did not have any other off-balance sheet arrangements as of September 30, 2017.2021. We did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes, other than the entities described above. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment and do not intend to provide additional funding to any such entities.

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CONTRACTUAL OBLIGATIONS
 
Our contractual obligations as of September 30, 20172021 included all of the material contractual obligations referred to in our annual report on Form 10-K for the year ended December 31, 2016,2020, excluding debt that was repaid as described in “—Liquidity and Capital Resources—Debt Obligations.”
 
In addition, we executed the following material contractual obligations during the nine months ended September 30, 2017:2021:
 
•Derivatives – as described in Note 10 to our Condensed Consolidated Financial Statements, we have altered the composition of our economic hedges during the period.
•Debt obligations – as described in Note 11 to our Condensed Consolidated Financial Statements, we borrowed additional amounts, including borrowings to fund MSRs.
amounts.


See Notes 1415 and 18 to our Condensed Consolidated Financial Statements included in this report for information regarding commitments and material contracts entered into subsequent to September 30, 2017,2021, if any. As described in Note 14,15, we have committed to purchase certain future servicer advances. The actual amount of future advances is subject to significant uncertainty. However, we currently expect that net recoveries of servicer advances will exceed net fundings for the foreseeable future. This expectation is based on judgments, estimates and assumptions, all of which are subject to significant uncertainty, as further described in “—Application of Critical Accounting Policies—Servicer Advance Investments.”uncertainty. In addition, the Consumer Loan Companies have invested in loans with an aggregate of $141.0$250.1 million of unfunded and available revolving credit privileges as of September 30, 2017.2021. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at management’s discretion. As described in Note 5 to our Condensed Consolidated Financial Statements, we have entered into the Ocwen Transaction.



INFLATION
 
Virtually all of our assets and liabilities are financial in nature. As a result, interest rates and other factors affect our performance more so than inflation, although inflation rates can often have a meaningful influence over the direction of interest rates. Furthermore, our financial statements are prepared in accordance with GAAP and our distributions are determined by our board of directors primarily based on our taxable income, and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation. See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.”



CORE EARNINGS
We have four 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 and (iv) our realized and unrealized gains or losses, including any impairment, on our investments. “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.
Our definition of core earnings includes accretion on held-for-sale loans as if they continued to be held-for-investment. Although we intend to sell such loans, there is no guarantee that such loans will be sold or that they will be sold within any expected timeframe. During the period prior to sale, we continue to receive cash flows from such loans and believe that it is appropriate to record a yield thereon. In addition, our definition of core earnings excludes all deferred taxes, rather than just deferred taxes related to unrealized gains or losses, because we believe deferred taxes are not representative of current operations. Our definition of core earnings also limits accreted interest income on RMBS where we receive par upon the exercise of associated call rights based on the estimated value of the underlying collateral, net of related costs including advances. We created this limit in order to be able to accrete to the lower of par or the net value of the underlying collateral, in instances where the net value of the underlying collateral is lower than par. We believe this amount represents the amount of accretion we would have expected to earn on such bonds had the call rights not been exercised.

Our investments in consumer loans are accounted for under ASC No. 310-20 and ASC No. 310-30, including certain non-performing consumer loans with revolving privileges that are explicitly excluded from being accounted for under ASC No. 310-30. Under ASC No. 310-20, the recognition of expected losses on these non-performing consumer loans is delayed in comparison to the level yield methodology under ASC No. 310-30, which recognizes income based on an expected cash flow model reflecting an investment’s lifetime expected losses. The purpose of the Core Earnings adjustment to adjust consumer loans to a level yield is to present income recognition across the consumer loan portfolio in the manner in which it is economically earned, avoid potential delays in loss recognition, and align it with our overall portfolio of mortgage-related assets which generally record income on a level yield basis. With respect to consumer loans classified as held-for-sale, the level yield is computed through the expected sale date. With respect to the gains recorded under GAAP in 2014 and 2016 as a result of a refinancing of, and the consolidation of, the Consumer Loan Companies, respectively, we continue to record a level yield on those assets based on their original purchase price.

While incentive compensation paid to our Manager may be a material operating expense, we exclude it from core earnings because (i) from time to time, a component of the computation of this expense will relate to items (such as gains or losses) that are excluded from core earnings, and (ii) it is impractical to determine the portion of the expense related to core earnings and non-core earnings, and the type of earnings (loss) that created an excess (deficit) above or below, as applicable, the incentive compensation threshold. To illustrate why it is impractical to determine the portion of incentive compensation expense that should be allocated to core earnings, we note that, as an example, in a given period, we may have core earnings in excess of the incentive compensation threshold but incur losses (which are excluded from core earnings) that reduce total earnings below the incentive compensation threshold. In such case, we would either need to (a) allocate zero incentive compensation expense to core earnings, even though core earnings exceeded the incentive compensation threshold, or (b) assign a “pro forma” amount of incentive compensation expense to core earnings, even though no incentive compensation was actually incurred. We believe that neither of these allocation methodologies achieves a logical result. Accordingly, the exclusion of incentive compensation facilitates comparability between periods and avoids the distortion to our non-GAAP operating measure that would result from the inclusion of incentive compensation that relates to non-core earnings.
With regard to non-capitalized transaction-related expenses, management does not view these costs as part of our core operations, as they are considered by management to be similar to realized losses incurred at acquisition. Non-capitalized transaction-related expenses are generally legal and valuation service costs, as well as other professional service fees, incurred when we acquire certain investments, as well as costs associated with the acquisition and integration of acquired businesses.
Management believes that the adjustments to compute “core earnings” specified above allow investors and analysts to readily identify and track the operating performance of the assets that form the core of our activity, assist in comparing the core operating results between periods, and enable investors to evaluate our current core performance using the same measure that management uses to operate the business. Management also utilizes core earnings as a measure in its decision-making process relating to improvements to the underlying fundamental operations of our investments, as well as the allocation of resources between those investments, and management also relies on core earnings as an indicator of the results of such decisions. Core earnings excludes certain recurring items, such as gains and losses (including impairment as well as derivative activities) and non-capitalized transaction-related expenses, because they are not considered by management to be part of our core operations for the reasons described herein. As such, core earnings is not intended to reflect all of our activity and should be considered as only one of the factors used by management in assessing our performance, along with GAAP net income which is inclusive of all of our activities.


The primary differences between core earnings and the measure we use to calculate incentive compensation relate to (i) realized gains and losses (including impairments), (ii) non-capitalized transaction-related expenses and (iii) deferred taxes (other than those related to unrealized gains and losses). Each are excluded from core earnings and included in our incentive compensation measure (either immediately or through amortization). In addition, our incentive compensation measure does not include accretion on held-for-sale loans and the timing of recognition of income from consumer loans is different. Unlike core earnings, our incentive compensation measure is intended to reflect all realized results of operations. The Gain on Remeasurement of Consumer Loans Investment was treated as an unrealized gain for the purposes of calculating incentive compensation and was therefore excluded from such calculation.


Core earnings does not represent and should not be considered as a substitute for, or superior to, net income or as a substitute for, or superior to, cash flows from operating activities, each as determined in accordance with U.S. GAAP, and our calculation of this measure may not be comparable to similarly entitled measures reported by other companies. For a further description of the difference between cash flow provided by operations and net income, see “—Liquidity and Capital Resources” above. Set forth below is a reconciliation of core earnings to the most directly comparable GAAP financial measure (dollars in thousands):
 Three Months Ended 
 September 30,		 Nine Months Ended  
 September 30,
 2017 2016 2017 2016
Net income attributable to common stockholders$226,121
 $98,908
 $669,231
 $279,296
Impairment28,209
 20,040
 74,117
 49,683
Other Income adjustments:       
Other Income       
Change in fair value of investments in excess mortgage servicing rights14,291
 17,060
 32,650
 24,397
Change in fair value of investments in excess mortgage servicing rights, equity method investees(2,054) (6,261) (6,056) (8,608)
Change in fair value of investments in mortgage servicing rights financing receivable(89,115) —
 (95,838) —
Change in fair value of servicer advance investments(10,941) (21,606) (70,469) (4,328)
Gain on consumer loans investment—
 —
 —
 (9,943)
Gain on remeasurement of consumer loans investment—
 —
 —
 (71,250)
(Gain) loss on settlement of investments, net(1,553) 11,165
 (1,250) 37,682
Unrealized (gain) loss on derivative instruments(3,560) (21,048) 124
 15,112
Unrealized (gain) loss on other ABS(189) (724) (340) 226
(Gain) loss on transfer of loans to REO(5,179) (4,373) (16,791) (14,660)
(Gain) loss on transfer of loans to other assets(66) (2,743) (359) (3,021)
Gain on Excess MSR recapture agreements(606) (768) (1,948) (2,188)
(Gain) loss on Ocwen common stock(6,987) —
 (6,987) —
Other (income) loss6,700
 2,597
 18,605
 8,054
Total Other Income Adjustments(99,259) (26,701) (148,659) (28,527)
        
Other Income and Impairment attributable to non-controlling interests(6,329) (4,783) (24,430) (9,970)
Change in fair value of investments in mortgage servicing rights11,518
 —
 (77,465) —
Non-capitalized transaction-related expenses6,467
 2,608
 14,397
 8,021
Incentive compensation to affiliate19,491
 7,075
 72,123
 13,200
Deferred taxes28,410
 17,132
 114,016
 12,998
Interest income on residential mortgage loans, held-for-sale4,603
 6,177
 12,069
 12,650
Limit on RMBS discount accretion related to called deals(13,543) —
 (20,059) (6,243)
Adjust consumer loans to level yield(9,874) (2,621) (23,460) 12,541
Core earnings of equity method investees:       
Excess mortgage servicing rights3,476
 6,092
 10,010
 12,231
Core Earnings$199,290
 $123,927
 $671,890
 $355,880



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market risk is the exposure to loss resulting from changes in interest rates, credit spreads, foreign currency exchange rates, commodity prices, equity prices and other market basedmarket-based risks. The primary market risks that we are exposed to are interest rate risk, mortgage basis spread risk, prepayment rate risk, credit spread risk and credit risk. These risks are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. All of our market risk sensitive assets, liabilities and derivative positions (other than TBAs) are for non-trading purposes only. For a further discussion of how market risk may affect our financial position or results of operations, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies.”

Interest Rate Risk
 
Changes in interest rates, including changes in expected interest rates or “yield curves,” affect our investments in various ways, the most significant of which are discussed below.
 
Cash FlowFair Value Impact

Changes in interest rates affect our net interest income, which is the difference between the interest income earned on assets and the interest expense incurred in connection with our debt obligations and hedges.
We may use match funded structures, when appropriate and available. This means that we may seek to match the maturities of our debt obligations with the maturities of our assets to reduce the risk that we have to refinance our liabilities prior to the maturities of our assets, and to reduce the impact of changing interest rates on our earnings. In addition, we may seek to match fund interest rates on our assets with like-kind debt (i.e., fixed rate assets are financed with fixed rate debt and floating rate assets are financed with floating rate debt), directly or through the use of interest rate swaps, caps or other financial instruments (see below), or through a combination of these strategies, which we believe allows us to reduce the impact of changing interest rates on our earnings.
However, increases or decreases in interest rates can nonetheless reduce our net interest income to the extent that we are not completely match funded. Furthermore, a period of changing interest rates can negatively impact our return on certain floating rate investments. Although these investments may be financed with floating rate debt, the interest rate on the debt may reset prior or subsequent to, and in some cases more or less frequently than, the interest rate on the assets, causing a decrease in return on equity during a period of changing interest rates. See further disclosure regarding our Agency RMBS under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio—Real Estate Securities—Agency RMBS” for information about certain reset terms and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt Obligations” for information about related debt.

We are exposed to fluctuations in forward LIBOR rates across our portfolio. For our Servicer Advance Investments (including the basic fee component of the related MSRs), forward LIBOR rates have a direct impact on current period income recognition. Performance-based incentive fees paid to both Nationstar and Ocwen as part of our MSR purchase agreements are impacted by changes in LIBOR. Ocwen’s performance-based incentive fee is reduced by a LIBOR-based factor if the advance ratio exceeds a predetermined level for that month. Shifts upward in projected LIBOR will increase any projected reduction in Ocwen’s incentive fee, thus increasing our share of the servicing fee. Conversely, shifts downward in projected LIBOR will decrease the projected reduction in Ocwen’s incentive fee, thus decreasing our share of the servicing fee. Nationstar’s performance-based incentive fee is based on our target equity return. Changes in LIBOR may impact Nationstar’s ability to reach our target return. Shifts downward in projected LIBOR will decrease our projected cost of borrowings thus decreasing the share of the servicing fee we need to receive in order to obtain our target return. Conversely, shifts upward in projected LIBOR will increase our projected cost of borrowings thus increasing the share of the servicing fee we need to receive in order to obtain our target return.

We have elected to record our Servicer Advance Investments, including the right to the basic fee component of the related MSRs, at fair value. Therefore, any changes to our projected payments to/from our related servicers can impact the estimated future cash flows used to value the investments and the unrealized gains/losses on the investment. Changes to estimated future cash flows will also impact interest income recognized in the current period. We may project net cash flow increases in connection with decreases in projected LIBOR, as a result of estimated savings on our future cost of borrowings outweighing estimated reductions of future retained servicing fees. However, only the asset impact would be reflected in our current period income statement.

As of September 30, 2017, an immediate 50 basis point increase in short term interest rates, based on a shift in the yield curve, would increase our cash flows by approximately $12.3 million in the next 12 months, whereas a 50 basis point decrease in short term interest rates would decrease our cash flows by approximately $9.5 million in the next 12 months, based solely on our current


net floating rate exposure and assuming a static portfolio of investments (including fixed rate repurchase agreements that mature within 60 days of September 30, 2017 and assuming a LIBOR floor of 0.0%).

Other Impacts


Changes in the level of interest rates also affect the yields required by the marketplace on interest rate instruments. Increasing interest rates would decrease the value of the fixed rate assets we hold at the time because higher required yields result in lower prices on existing fixed rate assets in order to adjust their yield upward to meet the market.
 
Changes in unrealized gains or losses resulting from changes in market interest rates do not directly affect our cash flows, or our ability to pay a dividend, to the extent the related assets are expected to be held and continue to perform as expected, as their fair value is not relevant to their underlying cash flows. Changes in unrealized gains or losses would impact our ability to realize gains on existing investments if they were sold. Furthermore, with respect to changes in unrealized gains or losses on investments which are carried at fair value, changes in unrealized gains or losses would impact our net book value and, in certain cases, our net income.
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Changes in interest rates can also have ancillary impacts on our investments. Generally, in a declining interest rate environment, residential mortgage loan prepayment rates increase which in turn would cause the value of MSRs, mortgage servicing rights financing receivable,receivables, Excess MSRs and the rights to the basic fee components of MSRs to decrease, because the duration of the cash flows we are entitled to receive becomes shortened, and the value of loans and Non-Agency RMBS to increase, because we generally acquired these investments at a discount whose recovery would be accelerated. With respect to a significant portion of our investments in MSRs and Excess MSRs, we have recapture agreements, as described in Notes 4 and 5 to our Consolidated Financial Statements. These recapture agreements help to protect these investments from the impact of increasing prepayment rates. In addition, to the extent that the loans underlying our investments in MSRs, mortgage servicing rightsMSR financing receivable,receivables, Excess MSRs and the rights to the basic fee components of MSRs are well-seasoned with credit-impaired borrowers who may have limited refinancing options, we believe the impact of interest rates on prepayments would be reduced. Conversely, in an increasing interest rate environment, prepayment rates decrease which in turn would cause the value of MSRs, mortgage servicing rightsMSR financing receivable,receivables, Excess MSRs and the rights to the basic fee components of MSRs to increase and the value of loans and Non-Agency RMBS to decrease. To the extent we do not hedge against changes in interest rates, our balance sheet, results of operations and cash flows would be susceptible to significant volatility due to changes in the fair value of, or cash flows from, our investments as interest rates change. However, rising interest rates could result from more robust market conditions, which could reduce the credit risk associated with our investments. The effects of such a decrease in values on our financial position, results of operations and liquidity are discussed below under “—Prepayment Rate Exposure.”


Changes in the value of our assets could affect our ability to borrow and access capital. Also, if the value of our assets subject to short-term financing were to decline, it could cause us to fund margin, or repay debt, and affect our ability to refinance such assets upon the maturity of the related financings, adversely impacting our rate of return on such investments.
 
We are subject to margin calls on our repurchasesecured financing agreements. Furthermore, we may, from time to time, be a party to derivative agreements or financing arrangements that are subject to margin calls, or mandatory repayment, based on the value of such instruments. We seek to maintain adequate cash reserves and other sources of available liquidity to meet any margin calls, or required repayments, resulting from decreases in value related to a reasonably possible (in our opinion) change in interest rates but there can be no assurance that our cash reserves will be sufficient.


In addition, changes in interest rates may impact our ability to exercise our call rights and to realize or maximize potential profits from them. A significant portion of the residential mortgage loans underlying our call rights bear fixed rates and may decline in value during a period of rising market interest rates. Furthermore, rising rates could cause prepayment rates on these loans to decline, which would delay our ability to exercise our call rights. These impacts could be at least partially offset by potential declines in the value of Non-Agency RMBS related to the call rights, which could then be acquired more cheaply, and in credit spreads, which could offset the impact of rising market interest rates on the value of fixed rate loans to some degree. Conversely, declining interest rates could increase the value of our call rights by increasing the value of the underlying loans.


We believe our consumer loan investments generally have limited interest rate sensitivity given that our portfolio is mostly composed of very seasoned loans with credit-impaired borrowers who are paying fixed rates, who we believe are relatively unlikely to change their prepayment patterns based on changes in interest rates.

As of September 30, 2017, an immediate 50 basis point increase in short term interest rates, based on a shift in the yield curve, would increase our net book value by approximately $258.1 million, whereas a 50 basis point decrease in short term interest rates would decrease our net book value by approximately $352.4 million, based on the present value of estimated cash flows on a static


portfolio of investments. This does not include changes in our book value resulting from potential related changes in discount rates; refer to “—Credit Spread Risk” below.


Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control.

A further discussionLIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform, and it appears likely that LIBOR will be phased out or the methodology for determining LIBOR will be modified by 2021. We currently have agreements that are indexed to LIBOR and are monitoring related reform proposals and evaluating the related risks; however, it is not possible to predict the effects of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for LIBOR-based financial instruments. See Part I, Item 1A, Risk Factors-Risks Related to Our Business-Changes in banks’ inter-bank lending rate reporting practices or the sensitivitymethod pursuant to which LIBOR is determined may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.

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The table below provides comparative estimated changes in our book value tobased on a parallel shift in the yield curve (assuming an unchanged mortgage basis) including changes in yields requiredour book value resulting from potential related changes in discount rates.
September 30, 2021December 31, 2020
Interest rate change (bps)Estimated Change in Fair Value (in millions)
+50bps+325.0+191.0
+25bps+181.3+98.0
-25bps-181.3-98.0
-50bps-370.0-199.0

Mortgage Basis Spread Risk

Mortgage basis measures the spread between the yield on current coupon mortgage backed securities and benchmark rates including treasuries and swaps. The level of mortgage basis is driven by demand and supply of mortgage backed instruments relative to other rate-sensitive assets. Changes in the mortgage basis have an impact on prepayment rates driven by the marketplaceability of borrowers underlying our portfolio to refinance. A lower mortgage basis would imply a lower mortgage rate which would increase prepayment speeds due to higher refinance activity and, therefore, lower fair value of our mortgage portfolio. The mortgage basis is also correlated with other spread products such as corporate credit, and in the crisis of the last decade it was at a generational wide not seen before or since. The table below provides comparative estimated changes in our book value based on interest bearing investments is included below under “—Credit Spread Risk.”changes in mortgage basis.
September 30, 2021December 31, 2020
Mortgage basis change (bps)Estimated Change in Fair Value (in millions)
+20bps+109.6-10.6
+10bps+54.8-5.3
-10bps-54.8+5.3
-20bps-109.6+10.6

Prepayment Rate Exposure
 
Prepayment rates significantly affect the value of MSRs, mortgage servicing rightsMSR financing receivable,receivables, Excess MSRs, the basic fee component of MSRs (which we own as part of our Servicer Advance Investments), Non-Agency RMBS and loans, including consumer loans. Prepayment rate is the measurement of how quickly borrowers pay down the UPB of their loans or how quickly loans are otherwise brought current, modified, liquidated or charged off. The price we pay to acquire certain investments will be based on, among other things, our projection of the cash flows from the related pool of loans. Our expectation of prepayment rates is a significant assumption underlying those cash flow projections. If the fair value of MSRs, mortgage servicing rightsMSR financing receivable,receivables, Excess MSRs or the basic fee component of MSRs decreases, we would be required to record a non-cash charge, which would have a negative impact on our financial results. Furthermore, a significant increase in prepayment rates could materially reduce the ultimate cash flows we receive from MSRs, mortgage servicing rightsMSR financing receivable,receivables, Excess MSRs or our right to the basic fee component of MSRs, and we could ultimately receive substantially less than what we paid for such assets. Conversely, a significant decrease in prepayment rates with respect to our loans or RMBS could delay our expected cash flows and reduce the yield on these investments.


We seek to reduce our exposure to prepayment through the structuring of our investments. For example, in our MSR and Excess MSR investments, we seek to enter into “recapture agreements” whereby our MSR or Excess MSR is retained if the applicable servicer or subservicer originates a new loan the proceeds of which are used to repay a loan underlying an MSR or Excess MSR in our portfolio. We seek to enter into such recapture agreements in order to protect our returns in the event of a rise in voluntary prepayment rates.
 
Please refer to the table in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies—Excess MSRs” for an analysis of the sensitivity of these investments to changes in certain market factors.
 
Credit Spread Risk
107

Credit spreads measure the yield demanded on financial instruments by the market based on their credit relative to U.S. Treasuries, for fixed rate credit, or LIBOR, for floating rate credit. Excessive supply of such financial instruments combined with reduced demand will generally cause the market to require a higher yield on such financial instruments, resulting in the use of a higher (or “wider”) spread over the benchmark rate to value them.
Widening credit spreads would result in higher yields being required by the marketplace on financial instruments. This widening would reduce the value of the financial instruments we hold at the time because higher required yields result in lower prices on existing financial instruments in order to adjust their yield upward to meet the market. The effects of such a decrease in values on our financial position, results of operations and liquidity are discussed above under “—Interest Rate Risk.”
As of September 30, 2017, a 25 basis point increase in credit spreads would decrease our net book value by approximately $168.0 million, and a 25 basis point decrease in credit spreads would increase our net book value by approximately $172.4 million, based on a static portfolio of investments, but would not directly affect our earnings or cash flow.

In an environment where spreads are tightening, if spreads tighten on the assets we purchase to a greater degree than they tighten on the liabilities we issue, our net spread will be reduced.
Credit Risk
 
We are subject to varying degrees of credit risk in connection with our assets. Credit risk refers to the ability of each individual borrower underlying our investments in MSRs, mortgage servicing rightsMSR financing receivable,receivables, Excess MSRs, Servicer Advance Investments, securities and loans to make required interest and principal payments on the scheduled due dates. If delinquencies increase, then the amount of servicer advances we are required to make will also increase, as would our financing cost thereof.


We may also invest in loans and Non-Agency RMBS which represent “first loss” pieces; in other words, they do not benefit from credit support although we believe they predominantly benefit from underlying collateral value in excess of their carrying amounts. Although weWe do not expect to encounter credit risk in our Agency RMBS, and we do anticipate credit risk related to Non-Agency RMBS, residential mortgage loans and consumer loans.
 
We seek to reduce credit risk through prudent asset selection, actively monitoring our asset portfolio and the underlying credit quality of our holdings and, where appropriate and achievable, repositioning our investments to upgrade their credit quality. Our pre-acquisition due diligence and processes for monitoring performance include the evaluation of, among other things, credit and risk ratings, principal subordination, prepayment rates, delinquency and default rates, and vintage of collateral.


For our MSRs, mortgage servicing rightsMSR financing receivable,receivables, and Excess MSRs on Agency collateral and our Agency RMBS, delinquency and default rates have an effect similar to prepayment rates. Our Excess MSRs on Non-Agency portfolios are not directly affected by delinquency rates because the servicer continues to advance principal and interest until a default occurs on the applicable loan, so delinquencies decrease prepayments therefore having a positive impact on fair value, while increased defaults have an effect similar to increased prepayments. For our Non-Agency RMBS and loans, higher default rates can lead to greater loss of principal. For our call rights, higher delinquencies and defaults could reduce the value of the underlying loans, therefore reducing or eliminating the related potential profit.


Market factors that could influence the degree of the impact of credit risk on our investments include (i) unemployment and the general economy, which impact borrowers’ ability to make payments on their loans, (ii) home prices, which impact the value of collateral underlying residential mortgage loans, (iii) the availability of credit, which impacts borrowers’ ability to refinance, and (iv) other factors, all of which are beyond our control.




Liquidity Risk
 
The assets that comprise our asset portfolio are generally not publicly traded. A portion of these assets may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions.


108

Investment Specific Sensitivity Analyses


Excess MSRs and MSR Financing Receivables

The following table summarizes the estimated change in fair value of our interests in the Agency Excess MSRs, including MSR financing receivables, owned directly as of September 30, 20172021 given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate (dollars in thousands):
Fair value at September 30, 2021$4,273,376 
Discount rate shift in %-20%-10%10%20%
Estimated fair value$4,549,380 $4,405,878 $4,148,782 $4,034,277 
Change in estimated fair value:
Amount$276,004 $132,502 $(124,594)$(239,099)
%6.5 %3.1 %(2.9)%(5.6)%
Prepayment rate shift in %-20%-10%10%20%
Estimated fair value$4,608,041 $4,431,962 $4,129,639 $3,998,479 
Change in estimated fair value:
Amount$334,665 $158,586 $(143,737)$(274,897)
%7.8 %3.7 %(3.4)%(6.4)%
Delinquency rate shift in %-20%-10%10%20%
Estimated fair value$4,304,238 $4,288,687 $4,257,915 $4,242,519 
Change in estimated fair value:
Amount$30,862 $15,311 $(15,461)$(30,857)
%0.7 %0.4 %(0.4)%(0.7)%
Recapture rate shift in %-20%-10%10%20%
Estimated fair value$4,210,267 $4,241,826 $4,304,942 $4,336,503 
Change in estimated fair value:
Amount$(63,109)$(31,550)$31,566 $63,127 
%(1.5)%(0.7)%0.7 %1.5 %
109

Fair value at September 30, 2017 $333,849
      
Discount rate shift in % -20% -10% 10% 20%
Estimated fair value $363,861
 $348,201
 $320,675
 $308,542
Change in estimated fair value:        
Amount $30,012
 $14,352
 $(13,174) $(25,307)
% 9.0 % 4.3 % (3.9)% (7.6)%
         
Prepayment rate shift in % -20% -10% 10% 20%
Estimated fair value $357,063
 $345,210
 $322,979
 $312,578
Change in estimated fair value:        
Amount $23,214
 $11,361
 $(10,870) $(21,271)
% 7.0 % 3.4 % (3.3)% (6.4)%
         
Delinquency rate shift in % -20% -10% 10% 20%
Estimated fair value $337,281
 $335,567
 $332,136
 $330,423
Change in estimated fair value:        
Amount $3,432
 $1,718
 $(1,713) $(3,426)
% 1.0 % 0.5 % (0.5)% (1.0)%
         
Recapture rate shift in % -20% -10% 10% 20%
Estimated fair value $324,225
 $329,006
 $338,768
 $343,758
Change in estimated fair value:        
Amount $(9,624) $(4,843) $4,919
 $9,909
% (2.9)% (1.5)% 1.5 % 3.0 %




The following table summarizes the estimated change in fair value of our interests in the Non-Agency Excess MSRs, including MSR financing receivables, owned directly as of September 30, 20172021 given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate (dollars in thousands):
Fair value at September 30, 2021$966,051 
Discount rate shift in %-20%-10%10%20%
Estimated fair value$1,052,619 $1,007,460 $927,840 $893,085 
Change in estimated fair value:
Amount$86,568 $41,409 $(38,211)$(72,966)
%9.0 %4.3 %(4.0)%(7.6)%
Prepayment rate shift in %-20%-10%10%20%
Estimated fair value$1,008,502 $985,978 $948,245 $933,439 
Change in estimated fair value:
Amount$42,451 $19,927 $(17,806)$(32,612)
%4.4 %2.1 %(1.8)%(3.4)%
Delinquency rate shift in %-20%-10%10%20%
Estimated fair value$1,006,594 $980,117 $926,963 $900,017 
Change in estimated fair value:
Amount$40,543 $14,066 $(39,088)$(66,034)
%4.2 %1.5 %(4.0)%(6.8)%
Recapture rate shift in %-20%-10%10%20%
Estimated fair value$954,384 $960,206 $971,849 $977,671 
Change in estimated fair value:
Amount$(11,667)$(5,845)$5,798 $11,620 
%(1.2)%(0.6)%0.6 %1.2 %
Fair value at September 30, 2017 $844,459
      
Discount rate shift in % -20% -10% 10% 20%
Estimated fair value $913,773
 $877,474
 $813,416
 $785,048
Change in estimated fair value:        
Amount $69,314
 $33,015
 $(31,043) $(59,411)
% 8.2 % 3.9 % (3.7)% (7.0)%
         
Prepayment rate shift in % -20% -10% 10% 20%
Estimated fair value $918,828
 $880,110
 $810,525
 $779,188
Change in estimated fair value:        
Amount $74,369
 $35,651
 $(33,934) $(65,271)
% 8.8 % 4.2 % (4.0)% (7.7)%
         
Delinquency rate shift in % -20% -10% 10% 20%
Estimated fair value $844,459
 $844,459
 $844,459
 $844,459
Change in estimated fair value:        
Amount $—
 $—
 $—
 $—
% — % — % — % — %
         
Recapture rate shift in % -20% -10% 10% 20%
Estimated fair value $839,943
 $842,003
 $846,212
 $848,365
Change in estimated fair value:        
Amount $(4,516) $(2,456) $1,753
 $3,906
% (0.5)% (0.3)% 0.2 % 0.5 %




The following table summarizes the estimated change in fair value of our interests in the Agency ExcessGinnie Mae MSRs, owned through equity method investees as of September 30, 20172021 given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate (dollars in thousands):
Fair value at September 30, 2021$1,325,840 
Discount rate shift in %-20%-10%10%20%
Estimated fair value$1,416,834 $1,369,545 $1,284,869 $1,247,160 
Change in estimated fair value:
Amount$90,994 $43,705 $(40,971)$(78,680)
%6.9 %3.3 %(3.1)%(5.9)%
Prepayment rate shift in %-20%-10%10%20%
Estimated fair value$1,464,554 $1,391,515 $1,266,308 $1,211,909 
Change in estimated fair value:
Amount$138,714 $65,675 $(59,532)$(113,931)
%10.5 %5.0 %(4.5)%(8.6)%
Delinquency rate shift in %-20%-10%10%20%
Estimated fair value$1,364,560 $1,345,034 $1,306,427 $1,287,168 
Change in estimated fair value:
Amount$38,720 $19,194 $(19,413)$(38,672)
%2.9 %1.4 %(1.5)%(2.9)%
Recapture rate shift in %-20%-10%10%20%
Estimated fair value$1,295,151 $1,310,496 $1,341,187 $1,356,532 
Change in estimated fair value:
Amount$(30,689)$(15,344)$15,347 $30,692 
%(2.3)%(1.2)%1.2 %2.3 %
110

Fair value at September 30, 2017 $175,633
      
Discount rate shift in % -20% -10% 10% 20%
Estimated fair value $190,417
 $182,703
 $169,135
 $163,151
Change in estimated fair value:        
Amount $14,784
 $7,070
 $(6,498) $(12,482)
% 8.4 % 4.0 % (3.7)% (7.1)%
         
Prepayment rate shift in % -20% -10% 10% 20%
Estimated fair value $186,883
 $181,144
 $170,344
 $165,277
Change in estimated fair value:        
Amount $11,250
 $5,511
 $(5,289) $(10,356)
% 6.4 % 3.1 % (3.0)% (5.9)%
         
Delinquency rate shift in % -20% -10% 10% 20%
Estimated fair value $178,252
 $176,942
 $174,322
 $173,012
Change in estimated fair value:        
Amount $2,619
 $1,309
 $(1,311) $(2,621)
% 1.5 % 0.7 % (0.7)% (1.5)%
         
Recapture rate shift in % -20% -10% 10% 20%
Estimated fair value $170,316
 $172,957
 $178,345
 $181,098
Change in estimated fair value:        
Amount $(5,317) $(2,676) $2,712
 $5,465
% (3.0)% (1.5)% 1.5 % 3.1 %


MSRs

The following table summarizes the estimated change in fair value of our interests in the Agency MSRs, including mortgage servicing rights financing receivable, owned as of September 30, 2017 given several parallel shifts in the discount rate, prepayment rate, delinquency rate and recapture rate (dollars in thousands):
Fair value at September 30, 2017 $2,176,418
      
Discount rate shift in % -20% -10% 10% 20%
Estimated fair value $2,359,336
 $2,264,143
 $2,095,371
 $2,020,301
Change in estimated fair value:        
Amount $182,918
 $87,725
 $(81,047) $(156,117)
% 8.4 % 4.0 % (3.7)% (7.2)%
         
Prepayment rate shift in % -20% -10% 10% 20%
Estimated fair value $2,342,182
 $2,257,295
 $2,099,363
 $2,025,931
Change in estimated fair value:        
Amount $165,764
 $80,877
 $(77,055) $(150,487)
% 7.6 % 3.7 % (3.5)% (6.9)%
         
Delinquency rate shift in % -20% -10% 10% 20%
Estimated fair value $2,195,027
 $2,185,725
 $2,167,117
 $2,157,813
Change in estimated fair value:        
Amount $18,609
 $9,307
 $(9,301) $(18,605)
% 0.9 % 0.4 % (0.4)% (0.9)%
         
Recapture rate shift in % -20% -10% 10% 20%
Estimated fair value $2,127,534
 $2,151,990
 $2,200,874
 $2,225,319
Change in estimated fair value:        
Amount $(48,884) $(24,428) $24,456
 $48,901
% (2.2)% (1.1)% 1.1 % 2.2 %



The following table summarizes the estimated change in fair value of our interests in the Non-Agency MSRs, including mortgage
servicing rights financing receivable, owned as of September 30, 2017 given several parallel shifts in the discount rate, prepayment
rate, delinquency rate and recapture rate (dollars in thousands):

Fair value at September 30, 2017 $133,727
      
Discount rate shift in % -20% -10% 10% 20%
Estimated fair value $148,132
 $140,607
 $127,415
 $121,607
Change in estimated fair value:        
Amount $14,405
 $6,880
 $(6,312) $(12,120)
% 10.8% 5.1% (4.7)% (9.1)%
         
Prepayment rate shift in % -20% -10% 10% 20%
Estimated fair value $136,768
 $135,216
 $132,292
 $130,904
Change in estimated fair value:        
Amount $3,041
 $1,489
 $(1,435) $(2,823)
% 2.3% 1.1% (1.1)% (2.1)%
         
Delinquency rate shift in % -20% -10% 10% 20%
Estimated fair value $134,099
 $133,913
 $133,540
 $133,352
Change in estimated fair value:        
Amount $372
 $186
 $(187) $(375)
% 0.3% 0.1% (0.1)% (0.3)%
         
Recapture rate shift in % -20% -10% 10% 20%
Estimated fair value $133,727
 $133,727
 $133,727
 $133,727
Change in estimated fair value:        
Amount $—
 $—
 $—
 $—
% —% —% — % — %


Each of the preceding sensitivity analyses is hypothetical and should be used with caution. In particular, the results are calculated by stressing a particular economic assumption independent of changes in any other assumption; in practice, changes in one factor may result in changes in another, which might counteract or amplify the sensitivities. Also, changes in the fair value based on a 10% variation in an assumption generally may not be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear.




ITEM 4. CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures


The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.


Changes in Internal Control Over Financial Reporting


ThereOn August 23, 2021, we completed the Caliber acquisition. Management is in the process of reviewing the operations of Caliber, and implementing our internal control structure over the operations of the recently acquired entity; however, we will elect to exclude Caliber when conducting our 2021 annual evaluation of the effectiveness of internal controls over financial reporting, as permitted by applicable regulations.

Except for the preceding changes, there have not been any other changes in the Company’sour internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.

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PART II. OTHER INFORMATION
 

ITEM 1. LEGAL PROCEEDINGS
 
Following the HLSS Acquisition, material potential claims, lawsuits, regulatory inquiriesWe are or investigations, and other proceedings, of which we are currently aware, are as follows. We have not accrued losses in connection with these legal contingencies because management does not believe there is a probable and reasonably estimable loss. Furthermore, we cannot reasonably estimate the range of potential loss related to these legal contingencies at this time. However, the ultimate outcomes of the proceedings described below may have a material adverse effect on our business, financial position or results of operations.

In addition to the matters described below,become, from time to time, we are or may be 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 our business, financial results.position or results of operations.

Three putative class action lawsuits have been filed against HLSS and certain of its current and former officers and directors in the United States District Court for the Southern District of New York entitled: (i) Oliveira v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-652 (S.D.N.Y.), filed on January 29, 2015; (ii) Berglan v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-947 (S.D.N.Y.), filed on February 9, 2015; and (iii) W. Palm Beach Police Pension Fund v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-1063 (S.D.N.Y.), filed on February 13, 2015. On April 2, 2015, these lawsuits were consolidated into a single action, which is referred to as the “Securities Action.” On April 28, 2015, lead plaintiffs, lead counsel and liaison counsel were appointed in the Securities Action. On November 9, 2015, lead plaintiffs filed an amended class action complaint. On January 27, 2016, the Securities Action was transferred to the United States District Court for the Southern District of Florida and given the Index No. 16-CV-60165 (S.D. Fla.).

The Securities Action names as defendants HLSS, former HLSS Chairman William C. Erbey, HLSS Director, President, and Chief Executive Officer John P. Van Vlack, and HLSS Chief Financial Officer James E. Lauter. The Securities Action asserts causes of action under Sections 10(b) and 20(a) of the Exchange Act based on certain public disclosures made by HLSS relating to its relationship with Ocwen and HLSS’s risk management and internal controls.  More specifically, the consolidated class action complaint alleges that a series of statements in HLSS’s disclosures were materially false and misleading, including statements about (i) Ocwen’s servicing capabilities; (ii) HLSS’s contingencies and legal proceedings; (iii) its risk management and internal controls; and (iv) certain related party transactions.  The consolidated class action complaint also appears to allege that HLSS’s financial statements for the years ended 2012 and 2013, and the first quarter ended March 30, 2014, were false and misleading based on HLSS’s August 18, 2014 restatement. Lead plaintiffs in the Securities Action also allege that HLSS misled investors by failing to disclose, among other things, information regarding governmental investigations of Ocwen’s business practices. Lead plaintiffs seek money damages under the Exchange Act in an amount to be proven at trial and reasonable costs, expenses, and fees. On February 11, 2015, defendants filed motions to dismiss the Securities Action in its entirety. On June 6, 2016, all allegations except those regarding certain related party transactions were dismissed.

On June 15, 2017, the court entered an order preliminarily approving a settlement of the Securities Action for $6.0 million, certifying a settlement class, approving the form and content of notice of the settlement to class members, and setting a hearing for November 17, 2017 to determine whether the settlement should receive final approval.


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.




ITEM 1A. RISK FACTORS


Investing in our common stock involves a high degree of risk. You should carefully read and consider the following risk factors and all other information contained in this report. If any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, occur, our business, financial condition or results of operations could be materially and adversely affected. The risk factors summarized below are categorized as follows: (i) Risks Related to Our Business, (ii) Risks Related to Our Manager, (iii) Risks Related to the Financial Markets, (iv) Risks Related to Our Taxation as a REIT, and (v) Risks Related to Our Common Stock.Stock and (vi) Risks Related to the Caliber Acquisition. However, these categories do overlap and should not be considered exclusive.


Risks Related to Our Business


The COVID-19 pandemic has impacted, and could further adversely impact or disrupt, our business, financial condition and results of operations, as well as the U.S. and global economy and financial markets. Continued disruptions could create widespread mortgage loan performance and business continuity and viability issues.

The COVID-19 pandemic has led to severe disruptions in the market and the global, U.S. and regional economies that may continue for a prolonged duration and trigger a recession or a period of economic slowdown. In response, various governmental bodies and private enterprises have implemented numerous measures to contain the outbreak, including vaccine mandates, travel bans, quarantines and other restrictions. These measures, among others, have slowed economic activities, and have led to significant and unprecedented volatility in the financial markets, including the markets in which we compete. The mortgage industry also has been negatively impacted.

In particular, our ability to operate successfully could be adversely impacted due to, but not limited to, the following:

•The pandemic could adversely impact the continued service and availability of skilled personnel, including our executive officers and other members of our management team, employees at our origination and servicing businesses and the servicers and subservicers that we engage, which we refer to as our “Servicing Partners,” and other third-party vendors. To the extent our management or other personnel, including those of our Manager, are impacted in significant numbers by the pandemic and are not available to conduct work, our business and operating results may be negatively impacted.

•Volatility in the residential credit market has caused and may continue to cause the market value of loans and securities we own subject to financing to decline, and our financing counterparties may make margin calls. Significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and could cause the value of our securities to decline.

•Significant and widespread decreases in the fair values of our assets could cause us to breach the financial covenants under our borrowing facilities or other agreements related to liquidity, net worth, leverage or other financial metrics. Such covenants, if breached, may require us to immediately repay all outstanding amounts borrowed, if any, under these facilities, could cause these facilities to become unavailable for future financing, and could trigger cross-defaults under other debt agreements. In any such scenario, we could engage in discussions with our financing counterparties with regard to such covenants; however, we cannot predict whether our financing counterparties would negotiate terms or agreements in respect of these financial covenants, the timing of any such negotiations or agreements or the terms thereof. A continued reduction in our cash flows could impact our ability to continue paying dividends to our stockholders at expected levels or at all.

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•Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may harm our business. Decreases in short-term interest rates may have a negative impact on our results, as we have certain assets and liabilities which are sensitive to changes in interest rates. Since March 2020, the Federal Reserve has maintained interest rates close to zero in response to COVID-19 pandemic concerns, and the continuation of such low interest rates may negatively affect our results of operations. In addition, a continuing decline in interest rates may result in higher refinancing activity and therefore increase the rate of prepayment on loans underlying our assets, which could have a material adverse effect on our result of operations.

•We could face difficulty accessing debt and equity capital on attractive terms, or at all. In addition, a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may adversely affect the valuation of financial assets and liabilities or cause us to reduce the volume of loans we originate and/or service, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

•A rise in unemployment levels in the U.S. and other effects of COVID-19 may cause borrowers to experience difficulties in meeting their payment obligations under the mortgage loans, or to seek forbearance on payments, which may result in significant decreases in cash flows. An increase in delinquencies or defaults would have an adverse impact on the value of our RMBS and MSR assets, as well as increase the cost to service our MSR assets. Furthermore, increased interest rates will reduce the amount of prepayments which could result in an increase in our servicer advance obligations for which we may need to obtain additional liquidity either through raising additional financing or selling additional assets. In addition, any significant decrease in economic activity or resulting decline in the housing market could have an adverse effect on our investments in mortgage loans, Agency RMBS, Non-Agency RMBS and other real estate assets.

•A decrease in the value of our qualifying REIT assets and other market developments resulting from COVID-19 may adversely affect our ability to continue to qualify as a REIT. Although we expect to be able to continue to satisfy the requirements for qualification as a REIT, no assurances can be given that we will be able to do so, or that doing so will not adversely affect our business plan.

•U.S. and other governmental authorities, including FHFA, HUD, the CFPB and the Federal Reserve, have taken certain actions that are intended to ameliorate the macroeconomic effects of the pandemic, and the potential impact of such actions on our business remains uncertain. For example, on March 27, 2020, the CARES Act was enacted to provide financial assistance to individuals and businesses affected by the COVID-19 pandemic. The CARES Act also provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing and loan forgiveness/forbearance. The CARES Act, among other things, provides any homeowner with a federally-backed mortgage who is experiencing financial hardship the option of up to six months of forbearance on their mortgage payments, with a potential to extend that forbearance up to an additional twelve months. In addition, in February 2021 the federal government announced an additional extension of three to six months depending on loan type. As a result of the CARES Act forbearance requirements, we expect to experience continue elevated delinquencies in our servicing portfolio that may require us to finance substantial amounts of advances of principal and interest payments to the investors holding those loans, as well as advances of property taxes, insurance premiums and other expenses. During the forbearance period, no additional fees, penalties or interest can accrue on the homeowner’s account. The CARES Act also established a temporary moratorium on foreclosures and the CFPB established requirements to be able to proceed with a foreclosure. Additionally, the CARES Act, and later the Centers for Disease Control and Prevention (“CDC”), imposed a nationwide temporary federal moratorium on residential evictions for nonpayment of rent. Unprecedented numbers of forbearances were requested as a result of the CARES Act and various executive orders and legislation in different states requiring servicers to administer forbearances. Extensive use by the public of the relief provided by the CARES Act, the CDC, the CFPB and other governmental authorities can have a negative impact on our financial results. However, none of the programs or legislation currently offer any liquidity initiatives to support servicers’ advancing obligations, other than the Pass-Through Assistance Program offered by Ginnie Mae. We may not be eligible for any such relief and there is no assurance that any of these relief programs or initiatives will be effective, sufficient or otherwise have a positive impact on our business. During 2020, elevated prepayment activity was sufficient to cover principal and interest payment advances required under the CARES Act, however, in the future elevated prepayment activity may be insufficient to cover required principal and interest advances. The effects of the CARES Act forbearance requirements could reduce our servicing fee income and increase our servicing expenses due to the increased number of delinquent loans, significant levels of forbearance that have been granted and continue to grant, as well as the resolution of loans that may ultimately default as the result of the ongoing COVID-19 pandemic. Future servicing advances will be driven
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by the number of borrower delinquencies, including those resulting from payment forbearance; the amount of time borrowers remain delinquent; and the level of successful resolution of delinquent payments, all of which will be impacted by the pace at which the economy recovers from the ongoing COVID-19 pandemic.

•To the extent we elect or are required to make temporary or lasting changes involving the status, practices and procedures of our operating businesses, including with respect to loan origination and servicing activities, we may strain our relationships with business partners, customers and counterparties, breach actual or perceived obligations to them, and be subject to litigation and claims from such partners, customers and counterparties, any of which could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

The extent of the pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic such as resurgence of COVID-19 cases in certain geographies, the related economic impacts, as well as the successful distribution and acceptance of vaccines for COVID-19, all of which remain uncertain and difficult to predict. The duration and ultimate impact of the COVID-19 pandemic and response thereto remains uncertain, and we are not able to estimate the ultimate effect of these and other unforeseen factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. A prolonged impact of COVID-19 could also heighten many of the other risks described in this report.

We may not be able to successfully operate our business strategy or generate sufficient revenue to make or sustain distributions to our stockholders.


We cannot assure you that we will be able to successfully operate our business or implement our operating policies and strategies. There can be no assurance that we will be able to generate sufficient returns to pay our operating expenses, satisfy our debt obligations and make satisfactory distributions to our stockholders, or any distributions at all. Our results of operations and our ability to make or sustain distributions to our stockholders depend on several factors, including the availability of opportunities to acquire attractive assets, the level and volatility of interest rates, the performance of our origination and servicing businesses, the availability of adequate short- and long-term financing, the ongoing impact of COVID-19 on our business, and conditions in the real estate market, the financial markets and economic conditions.


The value of our investments is based on various assumptions that could prove to be incorrect and could have a negative impact on our financial results.


When we make investments, we base the price we pay and, in some cases, the rate of amortization of those investments on, among other things, our projection of the cash flows from the related pool of loans. We generally record such investments on our balance sheet at fair value, and we measure their fair value on a recurring basis. Our projections of the cash flow from our investments, and the determination of the fair value thereof, are based on assumptions about various factors, including, but not limited to:
 
•rates of prepayment and repayment of the underlying loans;
•potential fluctuations in prevailing interest rates;rates and credit spreads;
•rates of delinquencies and defaults;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,servicer advances receivable, the amount and timing of servicer advances and recoveries.


Our assumptions could differ materially from actual results. The use of different estimates or assumptions in connection with the valuation of these investments could produce materially different fair values for such investments, which could have a material adverse effect on our consolidated financial position and results of operations and cash flows.operations. The ultimate realization of the value of our investments may be materially different than the fair values of such investments as reflected in our Condensed Consolidated Financial Statements as of any particular date.


We refer to our MSRs, MSR financing receivables, Excess MSRs, and the basic fee portion of the related MSRs included in our Servicer Advance Investments, collectively, as our interests in MSRs.

With respect to our investments in interests in MSRs, Excess MSRs, interest-only RMBS, residential mortgage loans and consumer loans, and a portion of our RMBS, when the related loans are prepaid as a result of a refinancing or otherwise, the related cash flows payable to us will either, in the case of interest-only RMBS, Excess MSRs, and/or interests in MSRs, cease (unless, in the case of MSRs and Excessour interests in MSRs, the
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loans are recaptured upon a refinancing), or we will cease to receive interest income on such investments, as applicable. Borrowers under residential mortgage loans and consumer loans are generally permitted to prepay their loans at any time without penalty. Our expectation of prepayment rates is a significant assumption underlying our cash flow projections. Prepayment rate is the measurement of how quickly borrowers pay down the UPB of their loans or how quickly loans are otherwise brought current, modified, liquidated or charged off. If the fair value of our MSRs, Excess MSRs or interest-only RMBS decreases, we would be required to record a non-cash charge, which would have a negative impact on our financial results. Furthermore, aA significant increase in prepayment rates could materially reduce the ultimate cash flows and/or interest income, as applicable, we receive from our investments, and we could ultimately receive substantially less than what we paid for such assets.assets, decreasing the fair value of our investments. If the fair value of our investment portfolio decreases, we would generally be required to record a non-cash charge, which would have a negative impact on our financial results. Consequently, the price we pay to acquire our investments may prove to be too high if there is a significant increase in prepayment rates.


The values of our investments are highly sensitive to changes in interest rates. Historically, the value of MSRs, which underpin the value of certain of our investments, including interests in MSRs, has increased when interest rates rise and decreased when interest rates decline due to the


effect of changes in interest rates on prepayment rates. The significant dislocation in the financial markets due to COVID-19 has caused, among other things, a sharp decrease in interest rates. Prepayment rates could increase as a result of a general economic recovery or other factors, which would reduce the value of our interests in MSRs.


Moreover, delinquency rates have a significant impact on the value of our investments. When delinquent residential mortgage loans are resolved through foreclosure (or repurchased by the GSEs), the UPB of such mortgage loans cease to be a part of the aggregate UPB of the serviced loan pool (for example, when the related propertiesdelinquent loans are foreclosed on and liquidated andor repurchased, or otherwise sold, from a securitized pool), the related cash flows payable to us, as the holder of an interest in the related MSR, Excess MSRcease. Depending on how long the pandemic continues to disrupt the economy and employment, our servicing business could experience our cost-to-service increase as we deal with higher delinquencies and foreclosures. However, we have not seen a deterioration in 30-day or basic fee, as applicable, cease.60-day delinquencies at this time. An increase in delinquencies will generally result in lower revenue because typically we will only collect on our interests in MSRs from GSEsthe Agencies or mortgage owners for performing loans. An increase in delinquencies with respect to the loans underlying our servicer advances could also result in a higher advance balance and the need to obtain additional financing, which we may not be able to do on favorable terms or at all. In addition, delinquencies on the loans underlying our servicer advances give rise to accrued but unpaid servicing fees, or “deferred servicing fees,” which we have agreed to purchase or have otherwise acquired in connection with our purchase of Servicer Advance Investments, and deferred servicing fees generally cannot be financed on terms as favorable as the terms available to other types of servicer advances. Additionally, in the case of residential mortgage loans, consumer loans and RMBS that we own, an increase in foreclosures could result in an acceleration of repayments, resulting in a decrease in interest income. Alternatively, increases in delinquencies and defaults could also adversely affect our investments in RMBS, residential mortgage loans and/or consumer loans if and to the extent that losses are suffered on residential mortgage loans, consumer loans or, in the case of RMBS, the residential mortgage loans underlying such RMBS. Accordingly, if delinquencies are significantly greater than expected, the estimated fair value of these investments could be diminished. As a result, we could suffer a loss, which would have a negative impact on our financial results.


We are party to several “recapture agreements” whereby our MSR or Excess MSR is retained if the applicable servicerServicing Partner originates a new loan the proceeds of which are used to repay a loan underlying an MSR or Excess MSR in our portfolio. We believe that such arrangementsagreements will mitigate the impact on our returns in the event of a rise in voluntary prepayment rates.rates, with respect to investments where we have such agreements. There are no assurances, however, that counterparties will enter into such arrangements with us in connection with any future investment in MSRs or Excess MSRs. We are not party to any such arrangements with respect to residential mortgage loans or consumer loans that we own.any of our investments other than MSRs and Excess MSRs.


If the applicable servicerServicing Partner does not meet anticipated recapture targets, the servicing cash flow on a given pool could be significantly lower than projected, which could have a material adverse effect on the value of our MSRs or Excess MSRs and consequently on our business, financial condition, results of operations and cash flows. Our recapture target for our current recapture agreements is stated in the table in Note 12 to our Condensed Consolidated Financial Statements. In our Servicer Advance Investments, we are not entitled to the cash flows from recaptured loans.


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.


We are generally required to make servicer advances related to the pools of loans for which we are the named servicer. In addition, we have agreed (in the case of Nationstar,Mr. Cooper, together with certain third-party investors) to purchase from certain of the servicers and subservicers that we engage, which we refer to as our servicers“Servicing Partners,” all servicer advances related to certain loan pools, as a result of which we are entitled to amounts representing repayment for such advances. During any period in which a borrower is not making payments, a servicer is generally required under the applicable servicing agreement to advance its own funds to cover the principal and interest remittances due to investors in the loans, pay property taxes and insurance premiums to third parties, and to make payments for legal expenses and other protective advances. The servicer also advances funds to maintain, repair and market real estate properties on behalf of investors in the loans.


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Repayment forof servicer advances and payment of deferred servicing fees are generally made from late payments and other collections and recoveries on the related residential mortgage loan (including liquidation, insurance and condemnation proceeds) or, if the related servicing agreement provides for a “general collections backstop,” from collections on other residential mortgage loans to which such servicing agreement relates. The rate and timing of payments on servicer advances and deferred servicing fees are unpredictable for several reasons, including the following:
 
•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 liquidation,a sale of the underlying real estate, resulting in the early reimbursement of outstanding unreimbursed servicer advances in respect of such residential mortgage loans.


As home values change, the servicer may have to reconsider certain of the assumptions underlying its decisions to make advances. In certain situations, its contractual obligations may require the servicer to make certain advances for which it may not be reimbursed. In addition, when a residential mortgage loan defaults or becomes delinquent, the repayment of the advance may be delayed until the residential mortgage loan is repaid or refinanced, or a liquidation occurs. To the extent that one of our servicersServicing Partners fails to recover the servicer advances in which we have invested, or takes longer than we expect to recover such advances, the value of our investment could be adversely affected and we could fail to achieve our expected return and suffer losses.


Servicing agreements related to residential mortgage securitization transactions generally require a residential mortgage servicer to make servicer advances in respect of serviced residential mortgage loans unless the servicer determines in good faith that the servicer advance would not be ultimately recoverable from the proceeds of the related residential mortgage loan, mortgaged property or mortgagor. In many cases, if the servicer determines that a servicer advance previously made would not be recoverable from these sources, the servicer is entitled to withdraw funds from the related custodial account in respect of payments on the related pool of serviced mortgages to reimburse the related servicer advance. This is what is often referred to as a “general collections backstop.” The timing of when a servicer may utilize a general collections backstop can vary (some contracts require actual liquidation of the related loan first, while others do not), and contracts vary in terms of the types of servicer advances for which reimbursement from a general collections backstop is available. Accordingly, a servicer may not ultimately be reimbursed if both (i) the payments from related loan, property or mortgagor payments are insufficient for reimbursement, and (ii) a general collections backstop is not available or is insufficient. Also, if a servicer improperly makes a servicer advance, it would not be entitled to reimbursement. Historically, according to information made available to us, Nationstar and Ocwen have each recovered more than 99% of the advances that they have made. While we do not expect recovery rates to vary materially during the term of our investments, there can be no assurance regarding future recovery rates related to our portfolio.


We rely heavily on mortgage servicers and subservicersour Servicing Partners to achieve our investment objective and have no direct ability to influence their performance.


The value of substantially all of our investments in MSRs, Excess MSRs, Servicer Advance Investments, Non-Agency RMBS and residential mortgage loans is dependent on the satisfactory performance of servicing obligations by the related mortgage servicer or subservicer, as applicable. The duties and obligations of mortgage servicers are defined through contractual agreements, generally referred to as Servicing Guides in the case of GSEs, the MBS Guide in the case of Ginnie Mae or pooling agreements, securitization servicing agreements, pooling and servicing agreements or other similar agreements (collectively, with the GSEs, the “Agencies”“PSAs”) or Pooling and Servicing Agreements in the case of Non-Agency securitiesRMBS (collectively, the “Servicing Guidelines”). The duties of the subservicers we engage to service the loans onunderlying our behalf when we own the MSRMSRs are defined throughcontained in subservicing agreements with our subservicers. The duties of a subservicer under a subservicing agreement may not be identical to the obligations of the servicer under Servicing Guidelines. Our investmentinterests in MSRs or Excess MSRs isare subject to all of the terms and conditions of the applicable Servicing Guidelines. Servicing Guidelines generally provide for the possibility of termination of the contractual rights of the servicer in the absolute discretion of the owner of the mortgages being serviced (or the required bondholders in the case of a residential mortgage backed securitization)Non-Agency RMBS). Under the Agency Servicing Guidelines, the servicer may be terminated by the applicable Agency for any reason, “with”
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“with” or “without” cause, for all or any portion of the loans being serviced for such Agency. In the event mortgage owners (or bondholders) terminate the servicer (regardless of whether such servicer is a subsidiary of New Residential or one of its subservicers), the related interests in MSRs Excess MSRs and basic fees, as applicable, would under most circumstances lose all value on a going forward basis. If the servicer is terminated as servicer for any Agency pools, the servicer’s right to service the related mortgage loans will be extinguished and our investmentinterests in related MSRs Excess MSRs and basic fees, as applicable, will likely lose all of itstheir value. Any recovery in such circumstances, in the case of Non-Agency RMBS, will be highly conditioned and may require, among other things, a new servicer willing to pay for the right to service the applicable residential mortgage loans while assuming responsibility for the origination and prior servicing of the residential mortgage loans. In addition, in the case of Agency MSRs, any payment received from a successor servicer will be applied first to pay the applicable Agency for all of its claims and costs, including claims and costs against the servicer that do not relate to the residential mortgage loans for which we own interests in the MSRs. A termination could also result in an event of default under our related financings. It is expected that any termination of a servicer by mortgage owners (or bondholders) would take effect across all mortgages of such mortgage owners (or bondholders) and would not be limited to a particular vintage or other subset of mortgages. Therefore, it is expectedpossible that all investments with a given servicer would lose all their value in the event mortgage owners (or bondholders) terminate such servicer. Nationstar, Ocwen, Ditech and PHH are the servicers of most of the loans underlying our investments in MSRs, Excess MSRs, and Servicer Advance Investments, including the related basic fee, and Nationstar and Ocwen are the servicer or master servicer of the vast majority of the loans underlying our Non-Agency RMBS to date. See “—We have significant counterparty concentration risk in Nationstar, Ocwen, Ditech and


OneMain,certain of our Servicing Partners, and are subject to other counterparty concentration and default risks.” As a result, we could be materially and adversely affected if Nationstar, Ocwen, Ditech, PHH or any other servicerone of the loans underlying our investmentsServicing Partners is unable to adequately carry out its duties as a result of:
 
•its failure to comply with applicable laws and regulation;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.


Nationstar isIn the ordinary course of business, our Servicing Partners are subject to numerous legal proceedings, federal, state or local governmental examinations, investigations or enforcement actions in the ordinary course of business, which could adversely affect itstheir reputation and itstheir liquidity, financial position and results of operations. For example, Nationstar announced that on March 15, 2017, it entered into a consent order with the Consumer Financial Protection Bureau (the “CFPB”), providing for $1.75 million in civil monetary penalties for failure to comply withMortgage servicers, including certain of the data reporting requirements of the Home Mortgage Disclosure Act. Other servicers, including Ocwen and Ditech,our Servicing Partners, have experienced heightened regulatory scrutiny and enforcement actions, and Nationstarour Servicing Partners could be adversely affected by the market’s perception that Nationstarthey could experience, similaror continue to experience, regulatory issues. See “—Ocwen has been and is subject to certain federal and state regulatory matters, which may adversely impact us” and “—Ditech and other Walter companiesCertain of our Servicing Partners have been and may beare subject to certain federal and state regulatory matters and certain other litigation, which may adversely impact us” for more information on heightened regulatory scrutiny of Ocwen and Ditech, respectively. In light of recent regulatory actions against Ocwen, we cannot assure you that Ocwen will not be removed as servicer by the Agencies or by bondholders, which could have a material adverse effect on our interests in the loans serviced by Ocwen.us.”


Loss mitigation techniques are intended to reduce the probability that borrowers will default on their loans and to minimize losses when defaults occur, and they may include the modification of mortgage loan rates, principal balances and maturities. If any of our servicers or subservicers failsServicing Partners fail to adequately perform itstheir loss mitigation obligations, we could be required to make or purchase, as applicable, servicer advances in excess of those that we might otherwise have had to make or purchase, and the time period for collecting servicer advances may extend. Any increase in servicer advances or material increase in the time to resolution of a defaulted loan could result in increased capital requirements and financing costs for us and our co-investors and could adversely affect our liquidity and net income. In the event that one of our servicers from which we are obligated to purchase servicer advances is required by the applicable Servicing Guidelines to make advances in excess of amounts that we or, in the case of Nationstar,Mr. Cooper, the co-investors, are willing or able to fund, such servicer may not be able to fund these advance requests, which could result in a termination event under the applicable Servicing Guidelines, an event of default under our advance facilities and a breach of our purchase agreement with such servicer. As a result, we could experience a partial or total loss of the value of our Servicer Advance Investments.


MSRs and servicer advances are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions. If the servicerServicing Partner actually or allegedly failed to comply with applicable laws, rules or regulations, it could be terminated as the servicer, and could lead to civil and criminal liability, loss of licensing, damage to our reputation and litigation, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, servicer advances that are improperly made may not be eligible for financing under our facilities and may not be reimbursable by the related securitization trust or other owner of the residential mortgage loan, which could cause us to suffer losses.


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Favorable servicer ratings from third-party rating agencies, such as S&P Global Ratings (“S&P”), Moody’s Investors Service (“Moody’s”) and Fitch Ratings (“Fitch”), are important to the conduct of a mortgage servicer’s loan servicing business, and a downgrade in a mortgage servicer’sServicing Partner’s servicer ratings could have an adverse effect on the value of our interests in MSRs Excess MSRs, and Servicer Advance Investments, including the related basic fee, and result in an event of default under our financings. Downgrades in a mortgage servicer’sServicing Partner’s servicer ratings could adversely affect their and our ability to finance our assets and maintain their status as an approved servicer by Fannie Mae and Freddie Mac. Downgrades in servicer ratings could also lead to the early termination of existing advance facilities and affect the terms and availability of financing that a mortgage servicerServicing Partner or we may seek in the future. A mortgage servicer’sServicing Partner’s failure to maintain favorable or specified ratings may cause their termination as a servicer and may impair their ability to consummate future servicing transactions, which could result in an event of default under our financing for servicer advances and have an adverse effect on the value of our investments sincebecause we will rely heavily on mortgage servicersServicing Partners to


achieve our investment objectiveobjectives and have no direct ability to influence their performance. As a result of recent regulatory actions, certain rating agencies have announced that they have placed Ocwen’s servicer ratings on review for possible downgrade.

In addition, a bankruptcy by any mortgage servicer that services the residential mortgage loans underlying our MSRs, Excess MSRs, and Servicer Advance Investments, including the related basic fee, could materially and adversely affect us. Walter announced that on October 20, 2017, it had entered into (i) an Amended and Restated Restructuring Support Agreement (as amended, the “Term Loan RSA”) with certain of its lenders under its credit agreement that are subject to the existing Restructuring Support Agreement, dated as of July 31, 2017 (as amended), and (ii) a Restructuring Support Agreement (the “Senior Noteholder RSA,” and together with the Term Loan RSA, the “RSAs”) with certain of its senior unsecured noteholders. Based on Walter’s public filings, each RSA provides for a proposed financial restructuring of Walter to be implemented through a prepackaged plan of reorganization under Title 11 of the United States Code. Walter reported that as of October 25, 2017, lenders holding approximately 89% of the term loans are parties to the Term Loan RSA and approximately 71% of the senior notes are parties to the Senior Noteholder RSA. Although Walter reported that its operating entities, including DiTech, are expected to remain out of Chapter 11 and continue their operations in ordinary course through the consummation of the RSAs, there can be no assurances as to what the outcome of Walter’s restructuring will be or that the outcome will not have a material adverse effect on us. See “—A bankruptcy of any of our mortgage servicers could materially and adversely affect us.”


For additional information about the ways in which we may be affected by mortgage servicers, see “—The value of our interests in MSRs, Excess MSRs, Servicer Advance Investmentsservicer advances, residential mortgage loans and RMBS may be adversely affected by deficiencies in servicing and foreclosure practices, as well as related delays in the foreclosure process.”


A number of lawsuits, including class-actions, have been filed against mortgage servicers alleging improper servicing in connection with residential non-agencyNon-Agency mortgage securitizations. Investors in, and counterparties to, such securitizations may commence legal action against us and responding to such claims, and any related losses, could negatively impact our business.


A number of lawsuits, including class actions, have been filed against mortgage servicers alleging improper servicing in connection with residential non-agencyNon-Agency mortgage securitizations. Investors in, and counterparties to, such securitizations may commence legal action against us and responding to such claims, and any related losses, could negatively impact our business. The number of counterparties on behalf of which we service loans significantly increases as the size of our non-agencyNon-Agency MSR portfolio increases and we may become subject to claims and legal proceedings, including purported class-actions, in the ordinary course of our business, challenging whether our loan servicing practices and other aspects of our business comply with applicable laws, agreements and regulatory requirements. We are unable to predict whether any such claims will be made, the ultimate outcome of any such claims, the possible loss, if any, associated with the resolution of such claims or the potential impact any such claims may have on us or our business and operations.  Regardless of the merit of any such claims or lawsuits, defending any claims or lawsuits may be time consuming and costly and we may be required to expend significant internal resources and incur material expenses, and management time may be diverted from other aspects of our business, in connection therewith. Further, if our efforts to defend any such claims or lawsuits are not successful, our business could be materially and adversely affected. As a result of investor and other counterparty claims, we could also suffer reputational damage and trustees, lenders and other counterparties could cease wanting to do business with us.


Ocwen hasCertain of our Servicing Partners have been and isare subject to certain federal and state regulatory matters and certain other litigation, which may adversely impact us.


Regulatory action andactions or legal proceedings against Ocwen, a public company,certain of our Servicing Partners could increase our financing costs or operating expenses, reduce our revenues or otherwise materially adversely affect our business, financial condition, results of operations and liquidity. OcwenSuch Servicing Partners may be subject to additional federal and state regulatory matters in the future that could materially and adversely affect the value of our investments becauseto the extent we rely heavily on Ocwenthem to achieve our investment objectives andbecause we have no direct ability to influence itstheir performance. Below is a descriptionCertain of our Servicing Partners have disclosed certain matters that Ocwen has disclosed in itstheir periodic reports filed with the SEC. ThereSEC, and there can be no assurance that such events will not have a material adverse effect on Ocwen.them. We are currently evaluating the impact of such events and cannot assure you what impact these events may have or what actions we may take under our agreements with Ocwen.the servicer. In addition, we cannot assure you that Ocwen will notany of our Servicing Partners could be removed as servicer by the Agenciesrelated loan owner or bycertain other transaction counterparties, to its securitization or bondholders, which could have a material adverse effect on our interests in the loans and MSRs serviced by Ocwen.such Servicing Partner.

On July 28, 2017, Ocwen entered into an agreement in principle to resolve two putative class actions, Snyder v. Ocwen Loan Servicing, LLC, Case No 1:14-cv-08461-MFK and Beecroft v. Ocwen Loan Servicing, LLC, Case No 1:16-cf-08677-MFK, which have been consolidated in the United States District Court for the Northern District of Illinois. The cases relate to Ocwen’s compliance with the Telephone Consumer Protection Act. Pending final approval by the court, Ocwen disclosed that the settlement


would include the establishment of a settlement fund to be distributed to impacted borrowers that submit claims for settlement benefits pursuant to a claims administrative process.

On July 20, 2017, Ocwen announced that it reached an agreement in principle to settle a class action, captioned In re Ocwen Financial Corporation Securities Litigation that was pending in the U.S. District Court for the Southern District of Florida and involved allegations in connection with Ocwen’s restatements of its 2013 and first quarter 2014 financial statements and the 2014 Consent Order (as described below), among other matters. Pending final approval by the court, Ocwen disclosed that the settlement would include a $49 million cash payment and an issuance of 2,500,000 shares of Ocwen’s common stock to plaintiffs.

On April 20, 2017, the CFPB filed a lawsuit against Ocwen in the U.S. District Court for the Southern District of Florida alleging misconduct in Ocwen’s mortgage servicing business, including illegal foreclosures on homeowners, servicing loans with incorrect and incomplete information and failure to send accurate monthly statements, properly credit payments or handle taxes and insurance. On April 21, 2017, Ocwen issued a statement disputing the allegations and announcing its intention to vigorously defend against the suit. On April 26, 2017, Ocwen announced the filing of two related motions seeking an early court ruling that the CFPB is unconstitutional and that its enforcement action against Ocwen should be dismissed.

Ocwen has disclosed that in April 2017, two state attorneys general took actions against Ocwen relating to its servicing practices. The Florida Attorney General filed a lawsuit in the U.S. District Court for the Southern District of Florida against Ocwen, Ocwen Mortgage Servicing, Inc. (“OMS”) and Ocwen Loan Servicing, LLC (“OLS”), alleging violations of federal and state consumer financial laws relating to Ocwen’s servicing business. These claims are similar to the claims made by the CFPB. The Florida Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties in excess of $10,000 per confirmed violation of the applicable statute. In addition, the Massachusetts Attorney General filed a lawsuit against OLS in the Superior Court for the Commonwealth of Massachusetts, alleging violations of state consumer financial laws relating to its servicing business, including with respect to its activities relating to lender-placed insurance and property preservation fees. The Massachusetts Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties of $5,000 per confirmed violation of the applicable statute. Ocwen has announced its belief that it has valid defenses to the claims made in both lawsuits and is vigorously defending itself in both of them.

Ocwen also announced that on April 20, 2017 and subsequently, 31 state (including the District of Columbia) mortgage and banking regulatory agencies issued orders against OLS and certain other Ocwen companies. All of these orders apply to OLS, but additional Ocwen entities are named in some state orders, including OMS, Homeward Residential, Inc. and Liberty Home Equity Solutions, Inc. While such orders tend to vary by state, they generally prohibit a range of actions, including (1) acquiring new MSRs, (2) originating or acquiring new mortgage loans, where we would be the servicer, (3) originating or acquiring new mortgage loans and (4) conducting foreclosure activities, among others. Ocwen announced its intention to vigorously defend itself while continuing to work with these regulatory agencies to resolve their concerns. In addition, Ocwen has announced that in July 2017, it received notice that Ginnie Mae had declared an event of default under Ocwen’s Guaranty Agreements with Ginnie Mae due to the state regulators’ orders (as described above), which created a material change in Ocwen’s business status under Chapter 3 of the Ginnie Mae MBS Guide. Ocwen has disclosed its intention to resolve Ginnie Mae’s concerns, including with respect to Ocwen’s efforts to settle the state regulatory matters; as of October 3, 2017, Ocwen has announced that it has reached a resolution with 21 states.

In April 2017, Ocwen received a subpoena from the Office of Inspector General of HUD requesting the production of documentation related to lender-placed insurance arrangements with a mortgage insurer and the amounts paid for such insurance. The subpoena consisted of a request for information but did not contain allegations against Ocwen.


In addition, Ocwen is onecertain of three defendants in an administrative complaint pending with HUD brought by a non-profit organization alleging discrimination in the manner in which it maintains REO properties in minority communities. Ocwen has announced its belief that the allegations are without merit and that it will vigorously defend.

Previously, on December 19, 2013, Ocwen announced that it had reached an agreement, which was approved by consent judgment by the U.S. District Court for the District of Columbia on February 26, 2014, involving the CFPB, various state attorneys general and other agencies that regulate the mortgage servicing industry. According to Ocwen’s disclosure, the key elements of the settlement are as follows:

A commitment by Ocwen to service loans in accordance with specified servicing guidelines and to be subject to oversight by an independent national monitor for three years;
A payment of $127.3 million to a consumer relief fund to be disbursed by an independent administrator to eligible borrowers. In May 2014, Ocwen satisfied this obligation with regards to the consumer relief fund, $60.4 million of which is the responsibility of former owners of certain servicing portfolios acquired by Ocwen, pursuant to indemnification and loss sharing provisions in the applicable agreements; and


A commitment by Ocwen to continue its principal forgiveness modification programs to delinquent and underwater borrowers, including underwater borrowers at imminent risk of default, in an aggregate amount of at least $2.0 billion over three years from the date of the consent order.  Ocwen will only receive credit towards its $2.0 billion commitment for principal reductions that satisfy various criteria set forth in the settlement. In April 2016, Ocwen satisfied these obligations and was credited with over $2.1 billion in consumer relief credits, which exceeded such obligations.
On March 27, 2017, Ocwen announced that it had entered into an additional settlement with the NY DFS in connection with the previously disclosed consent order, dated December 22, 2014 related to investigations into Ocwen’s mortgage servicing practices in New York (the “2014 Consent Order”) that, according to Ocwen’s disclosure, provides for:

The termination of the engagement of the NY DFS Operations Monitor appointed pursuant to the 2014 Consent Order; and
A determination on whether the restrictions on acquisitions of MSRs contained in the 2014 Consent Order should be eased following completion of a scheduled servicing examination.

On February 17, 2017, Ocwen announced that it had entered into a comprehensive settlement with the California Department of Business Oversight (the “CA DBO”), terminating the previously disclosed consent order, dated January 23, 2015. According to Ocwen’s disclosure, the key elements of the settlement to terminate the consent order are as follows:

Payment of $25.0 million (which Ocwen had previously reserved as of September 30, 2016); and
An additional $198.0 million in debt forgiveness through loan modifications to existing California borrowers over a three-year period.

On January 26, 2016, Ocwen announced that it had reached a settlement with the SEC, resolving the previously disclosed SEC matters, including Ocwen's business dealings with Altisource Portfolio Solutions, S.A., HLSS, Altisource Asset Management Corporation and Altisource Residential Corporation and the interests of its directors and executive officers in those companies, as well as amendments to Ocwen's 2013 Annual Report on Form 10-K and 2014 First Quarter Quarterly Report on Form 10-Q. According to Ocwen’s disclosure, the key elements of the settlement are as follows:

Payment of $2.5 million (of which Ocwen had previously accrued $2.0 million as of September 30, 2015 with respect to the proposed resolution); and
Consent to the entry of an administrative order requiring that Ocwen cease and desist from any violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and certain related SEC rules promulgated thereunder.

On August 25, 2016, Ocwen announced that it had entered into a Consent Order with the Washington State Department of Financial Institutions (the “WA-DFI”) relating to the activities of certain subsidiaries in Washington State under the Washington Consumer Loan Act. Ocwen disclosed that under the Consent Order, Ocwen neither admits nor denies any wrongdoing and agrees, among other things, to pay the WA-DFI $900,000 to conclude this matter.

Ditech and other Walter companies have been and may be subject to certain federal and state regulatory matters and certain other litigation, which may adversely impact us.

Walter and its subsidiariesour Servicing Partners have been and continue to be subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations and threatened legal actions and proceedings. In connection with formal and informal inquiries, Walter receivessuch Servicing Partners may receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of Walter’stheir activities, including whether certain of Ditech’stheir residential loan servicing and originationsorigination practices, bankruptcy practices and other aspects of itstheir business comply with applicable laws and regulatory requirements. WalterSuch Servicing Partners cannot provide any assurance as to the outcome of any of
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the aforementioned actions, proceedings or inquiries, or that such outcomes will not have a material adverse effect on Walter’stheir reputation, business, prospects, results of operations, liquidity or financial condition.


BelowFailure to successfully modify, resell or refinance early buyout loans or defaults of the early buyout loans beyond expected levels may adversely affect our business, financial condition, liquidity and results of operations.

The ongoing COVID-19 pandemic has significantly increased the number of Ginnie Mae loans that are descriptionsseriously delinquent in our Ginnie Mae MSR portfolio.As a mortgage servicer, we have an early buyout repurchase option (“EBOs”) for loans at least three months delinquent in our Ginnie Mae MSR portfolio. As of certain regulatorySeptember 30, 2021, New Residential holds approximately $1.8 billion in residential mortgage loans subject to repurchase on its Consolidated Balance Sheets. Purchasing delinquent Ginnie Mae loans provides us with an alternative to our mortgage servicing obligation of advancing principal and litigation mattersinterest at the coupon rate of the related Ginnie Mae security. While our EBO program reduces the cost of servicing the Ginnie Mae loans, it may also accelerate loss recognition when the loans are repurchased because we are required to write off accumulated non-reimbursable interest advances and other costs. In addition, after purchasing the delinquent Ginnie Mae loans, we expect to resecuritize many of the delinquent loans into another Ginnie Mae guaranteed security upon the delinquent loans becoming current either through the borrower’s reperformance or through the completion of a loan modification; however, there is no guarantee that Walter has disclosed publicly:

In April 2015, Walter announced that its wholly owned mortgage subservicing subsidiary, Ditech, entered into a stipulated order with the Federal Trade Commission (“FTC”) and the CFPB to resolve allegations resulting from an investigation by the FTC and CFPB that started in 2010 and continued into 2015 (“Stipulated Order”). According to Walter’s disclosure, the key elements to the Stipulated Order included injunctive relief, including establishing a data integrity program and a home preservation program,any delinquent loan will reperform or be modified. The ongoing COVID-19 pandemic as well as changing government regulations, including Ginnie Mae’s 2020 regulations requiring reperforming loan borrowers to make six months of timely payments of (i) $18 million for alleged misrepresentations relatingin certain circumstances before a loan can be repooled into another Ginnie Mae guaranteed security, has made estimating the loan amounts expected to payment methods that entail convenience fees; (ii) $30 million for alleged misrepresentations related primarilybe modified, resold or refinanced more difficult. Failure to the time it would take to review short sale requests and for alleged delays in processing loan modifications in servicing transfers; and (iii)successfully modify, resell or refinance our repurchased Ginnie Mae loans or if a


$15 million civil money penalty. Ditech remains subject to various ongoing obligations under the terms significant portion of the Stipulated Order, including requirements relating to data integrity testing, loan transfer practices, consumer disclosure practices, record-keeping,repurchased Ginnie Mae loans default may adversely affect our business, financial condition, liquidity and compliance reporting and monitoring.
Walter has received various subpoenas for testimony and documents, motions for examinations pursuant to Federal Rule of Bankruptcy Procedure 2004, and other information requests from certain Offices of the United States Trustees, acting through trial counsel in various federal judicial districts, seeking information regarding an array of Walter’s policies, procedures and practices in servicing loans to borrowers who are in bankruptcy and Walter’s compliance with bankruptcy laws and rules. The information has been provided in response to these subpoenas and requests and Walter’s management have met with representatives of certain Offices of the United States Trustees to discuss various issues that have arisen in the course of these inquiries, including compliance with bankruptcy laws and rules. The outcome of the aforementioned proceedings and investigations cannot be predicted, which could result in requests for damages, fines, sanctions, or other remediation. Walter could face further legal proceedings in connection with these matters, and may seek to enter into one or more agreements to resolve these matters. Any such agreement may require Walter to pay fines or other amounts for alleged breaches of law and to change or otherwise remediate Walter’s business practices.
From time to time, Walter has received and may in the future receive subpoenas and other information requests from federal and state governmental and regulatory agencies that are examining or investigating Walter. Walter and certain of its current or former officers have received subpoenas from the SEC requesting documents, testimony and/or other information in connection with an investigation concerning trading in Walter’s securities. Walter and the aforementioned officers are cooperating with the investigation. Walter cannot provide any assurance as to the outcome of the aforementioned investigations or that such outcomes will not have a material adverse effect on Walter’s reputation, business, prospects, results of operations, liquidity or financial condition.operations.
Since mid-2014, Walter has received subpoenas for documents and other information requests from the offices of various state attorneys general who have, as a group and individually, been investigating Walter’s mortgage servicing practices. According to Walter’s public filings, Walter has provided information in response to these subpoenas and requests and has had discussions with representatives of the states involved in the investigations to explain Walter’s practices. Walter may seek to reach an agreement to resolve these matters with one or more states. Any such agreement may include, among other things, enhanced servicing standards, monitoring and testing obligations, injunctive relief and payments for remediation, consumer relief, penalties and other amounts. Walter cannot predict whether litigation or other legal proceedings will be commenced by one or more states in relation to these investigations.
Walter is involved in litigation, including putative class actions, and other legal proceedings concerning, among other things, lender-placed insurance, private mortgage insurance, bankruptcy practices, employment practices, the Consumer Financial Protection Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, and other federal and state laws and statutes.
On August 28, 2015, Walter’s wholly owned subsidiary, Reverse Mortgage Solutions, Inc. (“RMS”), received a Civil Investigative Demand (“CID”) from the CFPB to produce certain documents and answer questions relating to RMS’s marketing and provision of reverse mortgage products and services. On December 7, 2016, RMS agreed to the terms of a consent order that settled the matters arising from a CFPB investigation. Under the order, RMS, without admitting or denying the allegations detailed in the order, agreed to pay a $325,000 civil money penalty. RMS also agreed to injunctions against future violationsCompletion of certain consumer protection statutes and regulations and agreed to establish and maintain a comprehensive compliance plan designed to ensure RMS’s compliance with applicable consumer financial protection law and the full terms of the consent order. If RMS fails to comply with the order, it could be subject to additional sanctions, including actions for contempt, actions seeking additional fines, or new actions alleging violations of consumer protection statutes.
Walter has also disclosed that RMS has received (i) subpoenas from the Office of Inspector General of the U.S. Department of Housing and Urban Development (“HUD”), requiring RMS to produce documents and other materials relating to, among other things, the origination, underwriting and appraisal of reverse mortgages for the time period since January 1, 2005, and (ii) a letter from the NY DFS requesting information on RMS’s reverse mortgage servicing business in New York. RMS has also received a subpoena dated March 30, 2017 from the Office of the Attorney General of the State of New York requiring RMS to produce documents and information relating to, among other things, the servicing of HECMs insured by the FHA during the period since January 1, 2012. Walter also disclosed that it is cooperating with this inquiry.
On June 17, 2016, Walter’s board of directors received a letter from a stockholder demanding that the board of directors assert legal claims against certain current and former directors and officers of Walter. The stockholder alleged that these directors and officers breached their fiduciary duties by failing to oversee Walter’s operations and internal controls regarding its loan servicing, loan origination, reverse mortgage and financial reporting practices. On June 27, 2016, the board formed an evaluation committee to consider and make a recommendation concerning the stockholder demand. On November 11, 2016, the evaluation committee recommended that the board refuse the demand, which the board adopted, and the demanding stockholder’s counsel has been informed of the board’s determination, according to Walter’s public disclosure.


On March 14, 2017, Walter publicly disclosed that it had identified material weaknesses in internal controls over operational processes related to Ditech default servicing activities and that, as a result, it had made several adjustments to reserves during the fourth quarter of 2016. In March and April of 2017, class action lawsuits were filed against Walter on behalf of its stockholders, alleging that Walter and its management had made false and/or misleading statements and omissions relating to its business and financial condition as a result of deficient internal controls. One such complaint, Courtney Elkin, et al. vs. Walter Investment Management Corp., et al., Case No. 2:17-cv-202025-AB, was transferred to the U.S. District Court for the Eastern District of Pennsylvania on May 2, 2017. The court has appointed a lead plaintiff in the action, and an amended complaint was due no later than August 18, 2017. Plaintiffs in the other two lawsuits, Emil Bonomi, et al. vs. Walter Investment Management Corporation, et al., Case No 8:17-cv-00645 and Joseph Petrovets, et al. vs. Walter Investment Management Corp., et al., Case No 8:17-cv-00695, agreed to dismiss their actions without prejudice and coordinate the pursuit of their claims with the claims in the Elkin action in the U.S. Court for the Eastern District of Pennsylvania. The Bonomi action was dismissed on May 4, 2017, and the Petrovets action was dismissed on May 9, 2017.
On August 9, 2017, Walter amended their Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Quarterly Reports on Form 10-Q for the fiscal periods ended June 30, 2016, September 30, 2016 and March 31, 2017, due to an error in their calculation of the valuation allowance on their deferred tax asset balances in the previously issued consolidated financial statements and other financial information contained in such reports. In light of their need to restate the aforementioned financial statements, Walter publicly disclosed that it has obtained the necessary waivers to certain provisions of a number of its and its subsidiaries’ credit and financing arrangements.
On June 22, 2017, a stockholder derivative complaint was filed against the current members of Walter’s Board of Directors in the U.S. District Court for the Eastern District of Pennsylvania. The complaint, Michael E. Vacek, Jr., et al. vs. George M. Awad, et al., Case No 2:17-cv-02820-AB, seeks monetary damages and equitable relief and asserts a claim for breach of fiduciary duty arising out of Walter’s alleged failure to disclose that: (i) it was involved in fraudulent practices that violated the False Claims Act; (ii) Ditech Financial had a material weakness in its internal controls over financial reporting; (iii) it had a material weakness relating to the ineffective review of the tax calculations associated with the valuation allowance on deferred tax asset balances; and (iv) it lacked adequate internal controls over financial reporting.
On July 13, 2017 and August 11, 2017, Walter received written notifications from the NYSE, indicating that Walter was considered to be non-compliant with the NYSE listing standards. Walter announced that it intends to take steps to remedy the listing deficiencies in a timely manner and that neither notification constitutes a violation of the terms of, or constitutes an event of default under, any of Walter’s material debt obligations.

The outcome of all of Walter’s regulatory matters and other legal proceedings is uncertain, and it is possible that adverse results in such proceedings (which could include restitution, penalties, punitive damages and injunctive relief affecting Walter’s business practices) and the terms of any settlements of such proceedings could have a material adverse effect on Walter’s reputation, business, prospects, results of operations, liquidity or financial condition. In addition, governmental and regulatory agency examinations, inquiries and investigations may result in the commencement of lawsuits or other proceedings against Walter or its personnel. Although Walter has historically been able to resolve the preponderance of its ordinary course litigations on terms it considered favorable and without a material effect, this pattern may not continue and, in any event, individual cases could have unexpected materially adverse outcomes, requiring payments or other expenses in excess of amounts already accrued. Walter cannot predict whether or how any legal proceeding will affect Walter’s business relationship with actual or potential customers, Walter’s creditors, rating agencies and others. In addition, cooperating in, defending and resolving these legal proceedings consume significant amounts of management time and attention and could cause Walter to incur substantial legal, consulting and other expenses and to change Walter’s business practices, even in cases where there is no determination that Walter’s conduct failed to meet applicable legal or regulatory requirements.



Completion of the pending transactions related to MSRs (the “MSR Transactions”) is subject to various closing conditions, involves significant costs, and we cannot assure you if, when or the terms on which such transactions will close. Failure to complete the pending MSR Transactions could adversely affect our future business and results of operations.

We have entered into an agreement for the purchase and sale of approximately $67.0 billion UPB of MSRs and related servicer advances from PHH Mortgage Corporation and its subsidiaries (“PHH”) (the various aspects of such transaction, the “PHH Transaction”). The completion of the pending PHH Transaction is subject to the satisfaction of closing conditions, and consents of third parties and we cannot assure you that such conditions will be satisfied and that some or all portions of the PHH Transaction will be successfully completed on their current terms, if at all. In the event that any portion of the PHH Transaction is not consummated, we will have spent considerable time and resources, and incurred substantial costs, many of which must be paid even if the PHH Transaction is not completed.


We have entered into an agreement for Ocwen to transfer its remaining interests in $110$110.0 billion of UPB of non-AgencyNon-Agency MSRs to NRM (the “Ocwen Subject MSRs”) to our subsidiaries, New Residential Mortgage, LLC (“NRM”) and Newrez LLC (“Newrez”). We currently hold certain interests in the Ocwen Subject MSRs (including all servicer advances) pursuant to existing agreements with Ocwen that we assumed in connection with the HLSS Acquisition.Ocwen. The transfer of Ocwen’s interests in the Ocwen Subject MSRs is subject to numerous consents of third parties and certain actions by rating agencies. ThereWhile certain of the Ocwen Subject MSRs have previously transferred to our subsidiaries, there is no assurance that we will be able to obtain such consents in order to transfer Ocwen’s interests in the Ocwen Subject MSRs to NRM.our subsidiaries. We have spent considerable time and resources, and incurred substantial costs, in connection with the negotiation of such transaction and we will incur such costs even if the OwcenOcwen Subject MSRs cannot be transferred to NRM.our subsidiaries. MSRs representing approximately $66.7 billion UPB of underlying loans have been transferred pursuant to the Ocwen Transaction. Economics related to the remaining MSRs subject to the Ocwen Transaction were transferred pursuant to the New Ocwen Agreements (Note 5 to our Consolidated Financial Statements).


We may be unable to become the named servicer in respect of certain Non-Agency MSRs because, among other potential reasons, we do not maintain any servicer ratings from rating agencies.MSRs. If we are unable to become the named servicer in respect of any of the Ocwen Subject MSRs in accordance with the Ocwen Transaction, Ocwen has the right, in certain circumstances, to purchase from us our interests in the related MSRs. In such a situation, we will be required to sell Ocwen those assets (and will cease to receive income on those investments) and/or may be required to refinance certain indebtedness on terms that are not favorable to us.


Our ability to acquire MSRs may be subject to the approval of various third parties and such approvals may not be provided on a timely basis or at all, or may be subject to conditions, representations and warranties and indemnities.


Our ability to acquire MSRs may be subject to the approval of various third parties and such approvals may not be provided on a timely basis or at all, or may be conditioned upon our satisfaction of significant conditions which could require material expenditures and the provision of significant representations, warranties and indemnities. Such third parties may include the Agencies and the FHFAFederal Housing Finance Agency (“FHFA”) with respect to agency MSRs, and securitization trustees, master servicers, depositors, rating agencies and insurers, among others, with respect to non-agencyNon-Agency MSRs. The process of obtaining any such approvals required for a servicing transfer, especially with respect to non-agencyNon-Agency MSRs, may be time consuming and costly and we may be required to expend significant internal resources and incur material expenses in connection with such transactions. Further, the parties from whom approval is necessary may require that we provide significant representations and warranties and broad indemnities as a condition to their consent, which such representations and warranties and indemnities, if given, may expose us to material risks in addition to those arising under the related servicing agreements. Consenting parties
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may also charge a material consent fee and may require that we reimburse them for the legal expenses they incur in connection with their approval of the servicing transfer, which such expenses may include costs relating to substantial contract due diligence and may be significant. No assurance can be given that we will be able to successfully obtain the consents required to acquire the MSRs that we have agreed to purchase.


We have significant counterparty concentration risk in Nationstar, Ocwen, Ditech, PHH and OneMain,certain of our Servicing Partners and are subject to other counterparty concentration and default risks.


We are not restricted from dealing with any particular counterparty or from concentrating any or all of our transactions with a few counterparties. Any loss suffered by us as a result of a counterparty defaulting, refusing to conduct business with us or imposing more onerous terms on us would also negatively affect our business, results of operations, cash flows and financial condition.


A majority of our investmentsOur interests in MSRs Excess MSRs and Servicer Advance Investments relate to loans serviced or subserviced, as applicable, by Nationstar, Ocwen, Ditech, our Servicing Partners. As disclosed in Notes 4, 5, and 6 of our Consolidated Financial Statements, certain of our Servicing Partners service and/or PHH.subservice a substantial portion of our interests in MSRs. If any of these servicer partiesServicing Partners is the named servicer asof the related MSR and is terminated, its servicing performance deteriorates, or in the event that any of them files for bankruptcy, our expected returns on these investments wouldcould be severely impacted. In addition, a large portion of the loans underlying our Non-Agency RMBS are serviced by Nationstar or Ocwen.certain of our Servicing Partners. We closely monitor Nationstar’s, Ocwen’s, Ditech’s and PHH’sour Servicing Partners’ mortgage servicing performance and overall operating performance, financial condition and liquidity, as well as their compliance with applicable regulations and Servicing Guidelines. We have various information, access and inspection rights in our agreements with these servicersServicing Partners that enable us to monitor aspects of their financial and operating performance and credit quality, which we periodically evaluate and discuss with their management. However, we have no direct ability to influence our servicers’Servicing Partners’ performance, and our diligence cannot prevent, and


may not even help us anticipate, the termination of any such servicers’Servicing Partners’ servicing agreement or a severe deterioration of any of our servicers’Servicing Partners’ servicing performance on our MSR portfolio.portfolio of interests in MSRs.


Furthermore, Nationstar, Ocwen and Waltercertain of our Servicing Partners are subject to numerous legal proceedings, federal, state or local governmental examinations, investigations or enforcement actions, which could adversely affect their operations, reputation and liquidity, financial position and results of operations. See “—Ocwen hasCertain of our Servicing Partners have been and isare subject to certain federal and state regulatory matters which may adversely impact us” and “—Ditech and other Walter companies have been and may be subject to certain federal and state regulatory matters and certain other litigation, which may adversely impact us” for more information on heightened regulatory scrutiny of Ocwen and Ditech, respectively.information.


None of our servicers or subservicers haveServicing Partners has an obligation to offer us any future co-investment opportunity on the same terms as prior transactions, or at all, and we may not be able to find suitable counterparties from which to acquire interests in MSRs, Excess MSRs and Servicer Advance Investments, which could impact our business strategy. See “—We will rely heavily on mortgage servicersour Servicing Partners to achieve our investment objective and have no direct ability to influence their performance.”


Repayment of the outstanding amount of servicer advances (including payment with respect to deferred servicing fees) may be subject to delay, reduction or set-off in the event that any applicable servicer or subservicerthe related Servicing Partner breaches any of its obligations under the Servicing Guidelines, including, without limitation, any failure of such servicer or subservicerServicing Partner to perform its servicing and advancing functions in accordance with the terms of such Servicing Guidelines. If any applicable servicer (included NRM, if NRM is the named servicer)Servicing Partner is terminated or resigns as servicer and the applicable successor servicer does not purchase all outstanding servicer advances at the time of transfer, collection of the servicer advances will be dependent on the performance of such successor servicer and, if applicable, reliance on such successor servicer’s compliance with the “first-in, first-out” or “FIFO” provisions of the Servicing Guidelines. In addition, such successor servicers may not agree to purchase the outstanding advances on the same terms as our current purchase arrangements and may require, as a condition of their purchase, modification to such FIFO provisions, which could further delay our repayment and adversely affect the returns from our investment.


We are subject to substantial other operational risks associated with Nationstar, Ocwen, Ditech, PHH or any other applicable servicer or subservicerour Servicing Partners in connection with the financing of servicer advances. In our current financing facilities for servicer advances, the failure of our servicer or subservicerServicing Partner to satisfy various covenants and tests can result in an amortization event and/or an event of default. We have no direct ability to control our servicer or subservicer’sServicing Partners’ compliance with those covenants and tests. Failure of our servicer or subservicerServicing Partners to satisfy any such covenants or tests could result in a partial or total loss on our investment.


In addition, Ocwen is aour Servicing Partners are party to substantially allour servicer advance financing agreements, with subsidiaries of HLSS acquired by us inrespect to those advances where they service or subservice the HLSS Acquisition (includingloans underlying the related servicer advance facilities).MSRs. Our ability to obtain financing for thethese assets of those acquired subsidiaries is dependent on Ocwen’sour Servicing Partners’ agreement to be a party to itsthe related financing agreements. If Ocwen doesour Servicing Partners do not agree to be a party to these financing agreements for any reason, we may not be able to obtain financing on favorable terms or at all. Our ability to obtain financing on such assets is dependent on our Servicing Partners’ ability to satisfy various tests under such
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financing arrangements. Breaches and other events with respect to Ocwen (including,our Servicing Partners (which may include, without limitation, failure of Ocwena Servicing Partner to satisfy certain financial tests) could cause certain or all of the relevant servicer advance financing in respect of mortgage loans underlying our MSR investments that are serviced or subserviced by Ocwen, to become due and payable prior to maturity. Our ability to obtain financing on such assets is

We are dependent on Ocwen’s ability to satisfy various tests under such financing arrangements. We will be dependent on Ocwenour Servicing Partners as the servicer or subservicer of the residential mortgage loans with respect to which we hold an MSR investment,interests in MSRs, and Ocwen’stheir servicing practices may impact the value of certain of our assets. We may be adversely impacted:


•By regulatory actions taken against Ocwen;our Servicing Partners;
•By a default by Ocwenone of our Servicing Partners under itstheir debt agreements;
•By further downgrades in Ocwen’sour Servicing Partners’ servicer rating;ratings;
•If Ocwen failsour Servicing Partners fail to ensure itstheir servicer advances comply with the terms of itstheir Pooling and Servicing Agreements (“PSAs”);
•If Ocwenour Servicing Partners were terminated as servicer under certain PSAs;
•If Ocwen becomesour Servicing Partners become subject to a bankruptcy proceeding; or
•If Ocwen failsour Servicing Partners fail to meet itstheir obligations or isare deemed to be in default under the indenture governing notes issued under any servicer advance facility with respect to which Ocwensuch Servicing Partner is the servicer.


A materialOur interests in MSRs relate to loans serviced or subserviced, as applicable, by our Servicing Partners. As disclosed in Notes 4, 5, and 6 of our Consolidated Financial Statements, certain of our Servicing Partners service and/or subservice a substantial portion of our MSR portfolio is subserviced by each of Citi, PHH, Ditech or Nationstar. Upon transfer of the Ocwen Subject MSRsinterests in connection with the Ocwen Transaction, Ocwen will subservice a material portion of our MSR portfolio. NationstarMSRs. In addition, Mr. Cooper is currently the servicer for a significant portion of our loans, and the loans underlying our Excess MSRs and Servicer Advance Investments. The selection of Nationstar as subservicer on the MSR portfolio in our agreement with CitiMortgage, Inc. for the purchase and sale of MSRs and related servicer advances (including certain other agreements, the “Citi Transaction”) extends our relationship with Nationstar, which could further exacerbate our counterparty concentration and default risks.RMBS. If the servicing performance of one of our subservicers deteriorates, if one of our subservicers files for bankruptcy or if one of our


subservicers is otherwise unwilling or unable to continue to subservice MSRs for us, our expected returns on these investments would be severely impacted. In addition, if a subservicer becomes subject to a regulatory consent order or similar enforcement proceeding, that regulatory action could adversely affect us in several ways. For example, the regulatory action could result in delays of transferring servicing from an interim subservicer to our designated successor subservicer or cause the subservicer’s performance to degrade. Any such development would negatively affect our expected returns on these investments, and such effect could be materially adverse to our business and results of operations. We closely monitor each subservicer’s mortgage servicing performance and overall operating performance, financial condition and liquidity, as well as its compliance with applicable regulations and GSE servicing guidelines. We have various information, access and inspection rights in our respective agreements with our subservicers that enable us to monitor their financial and operating performance and credit quality, which we periodically evaluate and discuss with each subservicer’s respective management. However, we have no direct ability to influence each subservicer’s performance, and our diligence cannot prevent, and may not even help us anticipate, a severe deterioration of each subservicer’s respective servicing performance on our MSR portfolio.


In addition, a material portion of the consumer loans in which we have invested are serviced by OneMain. If OneMain is terminated as the servicer of some or all of these portfolios, or in the event that it files for bankruptcy or is otherwise unable to continue to service such loans, our expected returns on these investments could be severely impacted.


Moreover, we are party to repurchase agreements with a limited number of counterparties. If any of our counterparties elected not to rollrenew our repurchase agreements, we may not be able to find a replacement counterparty, which would have a material adverse effect on our financial condition.


Our risk-management processes may not accurately anticipate the impact of market stress or counterparty financial condition, and as a result, we may not take sufficient action to reduce our risks effectively. Although we will monitor our credit exposures, default risk may arise from events or circumstances that are difficult to detect, foresee or evaluate.evaluate, such as a pandemic like COVID-19. In addition, concerns about, or a default by, one large participant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses.


In the event of a counterparty default, particularly a default by a major investment bank or Servicing Partner, we could incur material losses rapidly, and the resulting market impact of a major counterparty default could seriously harm our business, results of operations, cash flows and financial condition. In the event that one of our counterparties becomes insolvent or files for bankruptcy, our ability to eventually recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty or the applicable legal regime governing the bankruptcy proceeding.


Counterparty risks have increased in complexity and magnitude as a result of the insolvency of a number of major financial institutions in recent years and the consequent decrease in the number of potential counterparties. In addition, counterparties have generally tightened their underwriting standards and increased their margin requirements for financing, which could negatively impact us in several ways, including by decreasing the number of counterparties willing to provide financing to us, decreasing the overall amount of leverage available to us, and increasing the costs of borrowing.
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The counterparties to the MSR Transactions have been and are subject to certain federal and state regulatory matters and certain other litigation.

The counterparties to certain MSR Transactions have been and continue to be subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations and threatened legal actions and proceedings. In connection with formal and informal inquiries, the respective counterparties to the MSR Transactions may receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their activities, including whether certain of their residential loan servicing and originations practices, bankruptcy practices and other aspects of their business comply with applicable laws and regulatory requirements. Such counterparties cannot provide any assurance as to the outcome of any of the aforementioned actions, proceedings or inquiries, or that such outcomes will not have a material adverse effect on its reputation, business, prospects, results of operations, liquidity or financial condition.

A bankruptcy of any of our mortgage servicersServicing Partners could materially and adversely affect us.


If Nationstar, Ocwen, Ditech, PHH or any of our other mortgage servicersServicing Partners becomes subject to a bankruptcy proceeding, we could be materially and adversely affected, and you could suffer losses, as discussed below.


A sale of MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivableand servicer advances or other assets, including loans, could be re-characterized as a pledge of such assets in a bankruptcy proceeding.



We believe that a mortgage servicer’s transfer to us of MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivable and servicer advances or any other asset transferred pursuant to a related purchase agreement, including loans, constitutes a sale of such assets, in which case such assets would not be part of such servicer’s bankruptcy estate. The servicer (as debtor-in-possession in the bankruptcy proceeding), a bankruptcy trustee appointed in such servicer’s bankruptcy proceeding, or any other party in interest, however, might assert in a bankruptcy proceeding that MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivableand servicer advances or any other assets transferred to us pursuant to the related purchase agreement were not sold to us but were instead pledged to us as security for such servicer’s obligation to repay amounts paid by us to the servicer pursuant to the related purchase agreement. We generally create and perfect security interests with respect to the MSRs that we acquire, though we do not do so in all instances. If such assertion were successful, all or part of the MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivableand servicer advances or any other asset transferred to us pursuant to the related purchase agreement would constitute property of the bankruptcy estate of such servicer, and our rights against the servicer could be those of a secured creditor with a lien on such present and future assets. Under such circumstances, cash proceeds generated from our collateral would constitute “cash collateral” under the provisions of the U.S. bankruptcy laws. Under U.S. bankruptcy laws, the servicer could not use our cash collateral without either (a) our consent or (b) approval by the bankruptcy court, subject to providing us with “adequate protection” under the U.S. bankruptcy laws. In addition, under such circumstances, an issue could arise as to whether certain of these assets generated after the commencement of the bankruptcy proceeding would constitute after-acquired property excluded from our entitlement pursuant to the U.S. bankruptcy laws.




If such a recharacterization occurs, the validity or priority of our security interest in the MSRs Excessor interests in MSRs Servicer Advancesand servicer advances or other assets could be challenged in a bankruptcy proceeding of such servicer.


If the purchases pursuant to the related purchase agreement are recharacterized as secured financings as set forth above, we nevertheless created and perfected security interests with respect to the MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivableand servicer advances and other assets that we may have purchased from such servicer by including a pledge of collateral in the related purchase agreement and filing financing statements in appropriate jurisdictions. Nonetheless, to the extent we have created and perfected a security interest, our security interests may be challenged and ruled unenforceable, ineffective or subordinated by a bankruptcy court, and the amount of our claims may be disputed so as not to include all MSRs Excessor interests in MSRs Servicer Advance Investments and Servicer Advances Receivableservicer advances to be collected. If this were to occur, or if we have not created a security interest, then the servicer’s obligations to us with respect to purchased MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivable and servicer advances or other assets would be deemed unsecured obligations, payable from unencumbered assets to be shared among all of such servicer’s unsecured creditors. In addition, even if the security interests are found to be valid and enforceable, if a bankruptcy court determines that the value of the collateral is less than such servicer’s underlying obligations to us, the difference between such value and the total amount of such obligations will be deemed an unsecured “deficiency” claim and the same result will occur with respect to such unsecured claim. In addition, even if the security interest is found to be valid and enforceable, such servicer would have the right to use the proceeds of our collateral subject to either (a) our consent or (b) approval by the bankruptcy court, subject to providing us with “adequate protection” under U.S. bankruptcy laws. Such servicer also would have the ability to confirm a chapter 11 plan over our objections if the plan complied with the “cramdown” requirements under U.S. bankruptcy laws.


Payments made by a servicer to us could be voided by a court under federal or state preference laws.


If one of our mortgage servicersServicing Partners were to file, or to become the subject of, a bankruptcy proceeding under the United States Bankruptcy Code or similar state insolvency laws, and our security interest (if any) is declared unenforceable, ineffective or subordinated, payments previously made by a servicer to us pursuant to the related purchase agreement may be recoverable on behalf of the bankruptcy estate as preferential transfers. AAmong other reasons, a payment could constitute a preferential transfer if a court were to find that the payment was a transfer of an interest of property of such servicer that:


•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;
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•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.


If the court were to determine that any payments were avoidable as preferential transfers, we would be required to return such payments to such servicer’s bankruptcy estate and would have an unsecured claim against such servicer with respect to such returned amounts.


Payments made to us by such servicer, or obligations incurred by it, could be voided by a court under federal or state fraudulent conveyance laws.


The mortgage servicer (as debtor-in-possession in the bankruptcy proceeding), a bankruptcy trustee appointed in such servicer’s bankruptcy proceeding, or another party in interest could also claim that such servicer’s transfer to us of MSRs Excessor interests in MSRs Servicer Advance Investments, Servicer Advances Receivableand servicer advances or other assets or such servicer’s agreement to incur obligations to us under the related purchase agreement was a fraudulent conveyance. Under U.S. bankruptcy laws and similar state insolvency laws, transfers made or obligations incurred could be voided if, among other reasons, such servicer, at the time it made such transfers or incurred such obligations: (a) received less than reasonably equivalent value or fair consideration for such transfer or incurrence and (b) either (i) was insolvent at the time of, or was rendered insolvent by reason of, such transfer or incurrence; (ii) was engaged in, or was about to engage in, a business or transaction for which the assets remaining with such servicer were an unreasonably small capital; or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. If any transfer or incurrence is determined to be a fraudulent conveyance, Nationstar, Ocwen or Ditech,our Servicing Partner, as the case may be,applicable (as debtor-in-possession in the bankruptcy proceeding), or a bankruptcy trustee on such servicer’sServicing Partner’s behalf would be entitled to recover such transfer or to avoid the obligation previously incurred.




Any purchase agreement pursuant to which we purchase interests in MSRs, Excess MSRs, Servicer Advance Investments, Servicer Advances Receivableservicer advances or other assets, including loans,or any subservicing agreement between us and a subservicer on our behalf could be rejected in a bankruptcy proceeding of one of our mortgage servicersServicing Partners or counterparties.
 
A mortgage servicer (as debtor-in-possession in the bankruptcy proceeding) or a bankruptcy trustee appointed in such servicer’s or counterparty’s bankruptcy proceeding could seek to reject the related purchase agreement or subservicing agreement with a counterparty and thereby terminate such servicer’s or counterparty’s obligation to service the MSRs Excessor interests in MSRs Servicer Advances and servicer advances or any other asset transferred pursuant to such purchase agreement, and terminate our right to acquire additional assets under such purchase agreement and our right to require such servicer to use commercially reasonable efforts to transfer servicing. If the bankruptcy court approved the rejection, we would have a claim against such servicer or counterparty for any damages from the rejection, and the resulting transfer of our interests in MSRs or servicing of the MSRs relating to our Excess MSRs to another subservicer may result in significant cost and may negatively impact the value of our MSRs or Excessinterests in MSRs.


A bankruptcy court could stay a transfer of servicing to another servicer.


Our ability to terminate a subservicer or to require a mortgage servicer to use commercially reasonable efforts to transfer servicing rights to a new servicer would be subject to the automatic stay in such servicer’s bankruptcy proceeding. To enforce this right, we would have to seek relief from the bankruptcy court to lift such stay, and there is no assurance that the bankruptcy court would grant this relief.


Any Subservicing Agreement could be rejected in a bankruptcy proceeding. 


If one of our mortgage servicers or subservicersServicing Partners were to file, or to become the subject of, a bankruptcy proceeding under the United States Bankruptcy Code or similar state insolvency laws, such servicerServicing Partner (as debtor-in-possession in the bankruptcy proceeding) or the bankruptcy trustee could reject its subservicing agreement with us and terminate such servicer’sServicing Partner’s obligation to service the MSRs, servicer advances or loans in which we have an investment. Any claim we have for damages arising from the rejection of a subservicing agreement would be treated as a general unsecured claim for purposes of distributions from such servicer’sServicing Partner’s bankruptcy estate.


Our mortgage servicersServicing Partners could discontinue servicing.


If one of our mortgage servicers or subservicersServicing Partners were to file, or to become the subject of, a bankruptcy proceeding under the United States Bankruptcy Code, such servicerServicing Partner could be terminated as servicer (with bankruptcy court approval) or could discontinue servicing, in which case there is no assurance that we would be able to continue receiving payments and transfers in respect of
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the interests in MSRs, Excess MSRs, Servicer Advance Investments, Servicer Advances Receivableservicer advances and other assets purchased under the related purchase agreement or subserviced under the related subservicing agreement. Even if we were able to obtain the servicing rights or terminate the related subservicer, because we do not and in the future may not have the employees, servicing platforms, or technical resources necessary to service mortgage loans, we would need to engage an alternate subservicer (which may not be readily available on acceptable terms or at all) or negotiate a new subservicing agreement with such servicer, which presumably would be on less favorable terms to us. Any engagement of an alternate subservicer by us would require the approval of the related RMBS trustees or the Agencies, as applicable.


TheAn automatic stay under the United States Bankruptcy Code may prevent the ongoing receipt of servicing fees or other amounts due.


Even if we are successful in arguing that we own the interests in MSRs, Excess MSRs, Servicer Advance Investments, Servicer Advances Receivableservicer advances and other assets, including loans, purchased under the related purchase agreement, we may need to seek relief in the bankruptcy court to obtain turnover and payment of amounts relating to such assets, and there may be difficulty in recovering payments in respect of such assets that may have been commingled with other funds of such servicer.


A bankruptcy of any of our servicers or subservicersServicing Partners may default our MSR, Excess MSR and servicer advance financing facilities and negatively impact our ability to continue to purchase MSRs, Excess MSRs, Servicer Advance Investments and Servicer Advances Receivable.interests in MSRs.


If any of our servicers or subservicersServicing Partners were to file for bankruptcy or become the subject of a bankruptcy proceeding, it could result in an event of default under certain of our financing facilities that would require the immediate paydown of such facilities. In this scenario, we may not be able to comply with our obligations to purchase interests in MSRs and servicer advances under the related purchase agreements. Notwithstanding this inability to purchase, the related seller may try to force us to continue making such purchases.


If it is determined that we are in breach of our obligations under our purchase agreements, any claims that we may have against such related seller may be subject to offset against claims such seller may have against us by reason of this breach.


GSE initiativesCertain of our subsidiaries originate and service residential mortgage loans, which subject us to various operational risks that could have a negative impact on our financial results.

As a result of our previously disclosed acquisitions of Shellpoint Partners LLC and assets from the bankruptcy estate of Ditech, among others, certain subsidiaries of New Residential perform various mortgage and real estate related services, and have origination and servicing operations, which entail borrower-facing activities and employing personnel. Prior to such acquisitions, neither we nor any of our subsidiaries have previously originated or serviced loans directly, and owning entities that perform these and other actionsoperations could expose us to risks similar to those of our Servicing Partners, as well as various other risks, including, but not limited to those pertaining to:

•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 adversely affect returns from investments in MSRs and Excess MSRs.

On January 18, 2011,ultimately reduce the Federal Housing Finance Agency (“FHFA”) announcednumber of mortgages that it had instructed Fannie Mae and Freddie Mac to study possible alternatives to the currentwe service (also see-“The residential mortgage servicingloans underlying the securities we invest in and compensation system used for single-family mortgage loans. It is unclear what Fannie Mae or Freddie Mac may propose as alternatives to current servicing compensation practices, or when any such alternatives may become effective. Althoughthe loans we do not expect MSRs that have already been created to bedirectly invest in are subject to any changes implemented by Fannie Mae or Freddie Mac, it is possible that, becausedelinquency, foreclosure and loss, which could result in losses to us.”);
•maintaining the size of the significant rolerelated servicing portfolio and the volume of Fannie Mae or Freddie Mac in the secondaryorigination business;
•compliance with FHA underwriting guidelines; and
•termination of government mortgage market, any changes they implementrefinancing programs.

Any of the foregoing risks, among others, could become prevalent in the mortgage servicing industry generally. Other industry stakeholders or regulators may also implement or require changes in response to the perception that the current mortgage servicing practices and compensation do not appropriately serve broader housing policy objectives. These proposals are still evolving. To the extent the GSEs implement reforms that materially affect the market for conforming loans, there may be secondary effects on the subprime and Alt-A markets. These reforms may have a material adverse effect on our business, financial condition, results of operations and liquidity.

Our subsidiaries that perform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, and our subsidiaries' business results may be significantly impacted by the economics existing and future laws and regulations to which they are subject. If our subsidiaries performing mortgage lending and servicing activities fail to operate in compliance with both existing and future statutory,
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regulatory and other requirements, our business, financial condition, liquidity and/or performanceresults of any MSRsoperations could be materially and adversely affected.

Our subsidiaries that weperform mortgage lending and servicing activities are subject to extensive regulation by federal, state and local governmental and regulatory authorities, including the CFPB, the Federal Trade Commission, HUD, VA, the SEC and various state agencies that license, audit, investigate and conduct examinations of such subsidiaries’ mortgage servicing, origination, debt collection, and other activities. In the current regulatory environment, the policies, laws, rules and regulations applicable to our subsidiaries’ mortgage origination and servicing businesses have been rapidly evolving. Federal, state or local governmental authorities may acquirecontinue to enact laws, rules or regulations that will result in changes in our and our subsidiaries’ business practices and may materially increase the future.

Changes to the minimum servicing amount for GSE loans could occur at any time and could impact us in significantly negative ways that wecosts of compliance. We are unable to predict whether any such changes will adversely affect our business.

We and our subsidiaries must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Equal Credit Opportunity Act, as well as individual state licensing and foreclosure laws and federal and local bankruptcy rules. These statutes apply to many facets of our subsidiaries’ businesses, including loan origination, default servicing and collections, use of credit reports, safeguarding of non-public personally identifiable information about customers, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and such statutes mandate certain disclosures and notices to borrowers. These requirements can and will change as statutes and regulations are enacted, promulgated, amended, interpreted and enforced.

In addition, the GSEs, Ginnie Mae and other business counterparties subject our subsidiaries’ mortgage origination and servicing businesses to periodic examinations, reviews and audits, and we routinely conduct our own internal examinations, reviews and audits. These various examinations, reviews and audits of our subsidiaries’ businesses and related activities may reveal deficiencies in such subsidiaries’ compliance with our policies and other requirements to which they are subject. While we strive to investigate and remediate such deficiencies, there can be no assurance that our internal investigations will reveal any deficiencies or protect against.that any remedial measures that we implement, which could involve material expense, will ensure compliance with applicable policies, laws, regulations and other requirements or be deemed sufficient by the GSEs, Ginnie Mae, federal and local governmental authorities or other interested parties.


Currently, when a loan is sold intoWe and our subsidiaries devote substantial resources to regulatory compliance and regulatory inquiries, and we incur, and expect to continue to incur, significant costs in connection therewith. Our business, financial condition, liquidity and/or results of operations could be materially and adversely affected by the secondary market for Fannie Maesubstantial resources we devote to, and the significant compliance costs we incur in connection with, regulatory compliance and regulatory inquiries, including any fines, penalties, restitution or Freddie Mac loans, the servicer is generallysimilar payments we may be required to retain make in connection with resolving such matters.

The actual or alleged failure of our mortgage origination and servicing subsidiaries to comply with applicable federal, state and local laws and regulations and GSE, Ginnie Mae and other business counterparty requirements, or to implement and adhere to adequate remedial measures designed to address any identified compliance deficiencies, could lead to:

•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 minimumsignificant 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;
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•restrictions on our or our subsidiaries’ business activities;
•impairment of assets; and
•an inability to execute on our business strategy.

Any of these outcomes could materially and adversely affect our reputation, business, financial condition, prospects, liquidity and/or results of operations.

We cannot guarantee that any such scrutiny and investigations will not materially adversely affect us. Additionally, in recent years, the general trend among federal, state and local lawmakers and regulators has been toward increasing laws, regulations and investigative proceedings with regard to residential mortgage lenders and servicers. The CFPB continues to take an active role in supervising the mortgage industry, and its rule-making and regulatory agenda relating to loan servicing amount (“MSA”)and origination continues to evolve. Individual states have also been increasingly active in supervising non-bank mortgage lenders and servicers such as Newrez and Caliber, and certain regulators have communicated recommendations, expectations or demands with respect to areas such as corporate governance, safety and soundness, risk and compliance management, and cybersecurity, in addition to their focus on traditional licensing and examination matters.

Following the 2018 Congressional elections, a level of 25 basis pointsheightened uncertainty exists with respect to the future of regulation of mortgage lending and servicing, including the future of the UPB for fixed rate mortgages. As has been widely publicized,Dodd-Frank Act and CFPB. We cannot predict the specific legislative or executive actions that may result or what actions federal or state regulators might take in September 2011, the FHFA announced that a Joint Initiative on Mortgage Servicing Compensation was seeking public comment on two alternative mortgage servicing compensation structures detailed in a discussion paper. Changesresponse to potential changes to the MSA structureDodd-Frank Act or to the federal regulatory environment generally. Such actions could significantlyimpact the mortgage industry generally or us specifically, could impact our businessrelationships with other regulators, and could adversely impact our business.

The CFPB and certain state regulators have increasingly focused on the use, and adequacy, of technology in negative ways that we cannot predict or protect against. For example, the elimination of a MSA could radically change the mortgage servicing industryindustry. For example, in 2016, the CFPB issued a special edition supervision report that stressed the need for mortgage servicers to assess and could severely limitmake necessary improvements to their information technology systems in order to ensure compliance with the supplyCFPB’s mortgage servicing requirements. The New York Department of MSRs or Excess MSRs availableFinancial Services (“NY DFS”) also issued Cybersecurity Requirements for sale.Financial Services Companies, effective in 2017, which requires banks, insurance companies, and other financial services institutions regulated by the NY DFS to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry. In addition, a removalthe CCPA, effective in January 2020, requires businesses that maintain personal information of California residents, including certain mortgage lenders and servicers, to notify certain consumers when collecting their data, respond to consumer requests relating to the uses of their data, verify the identities of consumers who make requests, disclose details regarding transactions involving their data, and maintain records of consumer’ requests relating to their data, among various other obligations, and to create procedures designed to comply with CCPA requirements. The impact of the CCPA and its implementing regulations on our mortgage origination and servicing businesses remains uncertain, and may result in an increase in legal and compliance costs.

New regulatory and legislative measures, or reductionchanges in enforcement practices, including those related to the technology we use, could, either individually or in the MSA could significantly reduce the recapture rate on the affected loan portfolio, which would negatively affect the investment return on our MSRs or Excess MSRs. We cannot predict whether anyaggregate, require significant changes to current MSA rules will occurour business practices, impose additional costs on us, limit our product offerings, limit our ability to efficiently pursue business opportunities, negatively impact asset values or what impactreduce our revenues. Accordingly, any changes willof the foregoing could materially and adversely affect our business and our financial condition, liquidity and results of operations.

A failure to maintain minimum servicer ratings could have an adverse effect on our business, financing activities, financial condition or results of operations, liquidityoperations.

S&P, Moody’s and Fitch rates Newrez as a residential loan servicer, and a downgrade, or failure to maintain, any of our servicer ratings could:

•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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Any of the above could adversely affect our business, financial condition.condition and results of operations.


Our investmentsinterests in MSRs Excess MSRs and Servicer Advance Investments may involve complex or novel structures.


InvestmentsInterests in MSRs Excess MSRs and Servicer Advance Investments may entail new types of transactions and may involve complex or novel structures. Accordingly, the risks associated with the transactions and structures are not fully known to buyers and sellers. In the case of MSRs or Excessinterests in MSRs on Agency pools, Agencies may require that we submit to costly or burdensome conditions as a prerequisite to their consent to an investment in, or our financing of, MSRs or Excessinterests in MSRs on Agency pools. Agency conditions, including capital requirements, may diminish or eliminate the investment potential of MSRs or Excessinterests in MSRs on Agency pools by making such investments too expensive for us or by severely limiting the potential returns available from MSRs or Excessinterests in MSRs on Agency pools.


It is possible that an Agency’s views on whether any such acquisition structure is appropriate or acceptable may not be known to us when we make an investment and may change from time to time for any reason or for no reason, even with respect to a completed investment. An Agency’s evolving posture toward an acquisition or disposition structure through which we invest in or dispose of Excessinterests in MSRs on Agency pools may cause such Agency to impose new conditions on our existing investmentsinterests in Excess MSRs on Agency pools, including the owner’s ability to hold such Excessinterests in MSRs on Agency pools directly or indirectly through a grantor trust or other means. Such new conditions may be costly or burdensome and may diminish or eliminate the investment potential of the Excessinterests in MSRs on Agency pools that are already owned by us. Moreover, obtaining such consent may require us or our co-investment counterparties to agree to material structural or economic changes, as well as agree to indemnification or other terms that expose us to risks to which we have not previously been exposed and that could negatively affect our returns from our investments.


Our ability to finance the MSRs and servicer advancesadvance receivables acquired in the MSR Transactions may depend on the related servicer’sServicing Partner’s cooperation with our financing sources and compliance with certain covenants.


We have in the past and intend to continue to finance some or all of the MSRs or servicer advancesadvance receivables acquired in the MSR Transactions, and as a result, we will be subject to substantial operational risks associated with the related servicers.Servicing Partners. In our current financing facilities for Excessinterests in MSRs and servicer advances,advance receivables, the failure of the related servicerServicing Partner to satisfy various covenants and tests can result in an amortization event and/or an event of default. Our financing sources may require us to include similar provisions in any


financing we obtain relating to the MSRs and servicer advances acquired in the MSR Transactions. If we decide to finance such assets, we will not have the direct ability to control any party’s compliance with any such covenants and tests and the failure of any party to satisfy any such covenants or tests could result in a partial or total loss on our investment. Some financing sources may be unwilling to finance any assets acquired in the MSR Transactions.


Although we have upsized certain of our advance facilities, if we are not successful in upsizing our facilities in the future, we will need to explore other sources of liquidity and are if we are unable to obtain additional liquidity, we may have to take additional actions, including selling assets and reducing our originations to generate liquidity to support our servicer advance obligations.

In addition, any financing for the MSRs and servicer advances acquired in the MSR Transactions may be subject to regulatory approval and the agreement of the relevant servicer or subservicerServicing Partner to be party to such financing agreements. If we cannot get regulatory approval or these parties do not agree to be a party to such financing agreements, we may not be able to obtain financing on favorable terms or at all.


Mortgage servicing is heavily regulated at the U.S. federal, state and local levels, and each transfer of MSRs to our subservicer of such MSRs may not be approved by the requisite regulators.


Mortgage servicers must comply with U.S. federal, state and local laws and regulations. These laws and regulations cover topics such as licensing; allowable fees and loan terms; permissible servicing and debt collection practices; limitations on forced-placed insurance; special consumer protections in connection with default and foreclosure; and protection of confidential, nonpublic consumer information. The volume of new or modified laws and regulations has increased in recent years, and states and individual cities and counties continue to enact laws that either restrict or impose additional obligations in connection with certain loan origination, acquisition and servicing activities in those cities and counties. The laws and regulations are complex and vary greatly among the states and localities, and in some cases, these laws are in conflict with each other or with U.S. federal law. In connection with the MSR Transactions, there is no assurance that each transfer of MSRs to our selected subservicer will be approved by the requisite regulators. If regulatory approval for each such transfer is not obtained, we may incur additional costs and expenses in connection with the approval of another replacement subservicer.


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We do not have legal title to the MSRs underlying our Excess MSRs andor certain of our servicer advances.Servicer Advance Investments.


We do not have legal title to the MSRs underlying our Excess MSRs andor certain of the MSRs related to the transactions contemplated by the purchase agreements pursuant to which we acquire Servicer Advance Investments or MSR financing receivables from Ocwen, SLS and Nationstar,Mr. Cooper, and are subject to increased risks as a result of the related servicer continuing to own the mortgage servicing rights. The validity or priority of our interest in the underlying mortgage servicing could be challenged in a bankruptcy proceeding of the servicer, and the related purchase agreement could be rejected in such proceeding. Any of the foregoing events might have a material adverse effect on our business, financial condition, results of operations and liquidity. As part of the Ocwen Transaction, we and Ocwen willhave agreed to cooperate to obtain any third party consents required to transfer Ocwen’s remaining interest in the Ocwen Subject MSRs to us. As noted above, however, there is no assurance that we will be successful in obtaining those consents.


Many of our investments may be illiquid, and this lack of liquidity could significantly impede our ability to vary our portfolio in response to changes in economic and other conditions or to realize the value at which such investments are carried if we are required to dispose of them.


Many of our investments are illiquid. Illiquidity may result from the absence of an established market for the investments, as well as legal or contractual restrictions on their resale, refinancing or other disposition. Dispositions of investments may be subject to contractual and other limitations on transfer or other restrictions that would interfere with subsequent sales of such investments or adversely affect the terms that could be obtained upon any disposition thereof.


Interests in MSRs Excess MSRs and Servicer Advance Investments are highly illiquid and may be subject to numerous restrictions on transfers, including without limitation the receipt of third-party consents. For example, the Servicing Guidelines of a mortgage owner may require that holders of Excess MSRs obtain the mortgage owner’s prior approval of any change of direct ownership of such Excess MSRs. Such approval may be withheld for any reason or no reason in the discretion of the mortgage owner. Moreover, we have not received and do not expect to receive any assurances from any GSEs that their conditions for the sale by us of any MSRs or Excessinterests in MSRs will not change. Therefore, the potential costs, issues or restrictions associated with receiving such GSEs’ consent for any such dispositions by us cannot be determined with any certainty. Additionally, investmentsinterests in MSRs Excess MSRs and Servicer Advance Investments may entail complex transaction structures and the risks associated with the transactions and structures are not fully known to buyers or sellers. As a result of the foregoing, we may be unable to locate a buyer at the time we wish to sell MSRs, Excess MSRs or Servicer Advance Investments.interests in MSRs. There is some risk that we will be required to dispose of interests in MSRs Excess MSRs or Servicer Advance Investments either through an in-kind distribution or other liquidation vehicle, which will, in either case, provide little or no economic benefit to us, or a sale to a co-investor in the interests in MSRs, Excess MSRs or Servicer Advance Investments, which may be an affiliate. Accordingly, we cannot provide any assurance that we will obtain any return or any benefit of any kind from any disposition of MSRs, Excess MSRs or Servicer Advance Investments.interests in MSRs. We may not benefit from the full term of the assets and for the aforementioned reasons may not receive any benefits from the disposition, if any, of such assets.




In addition, some of our real estate relatedand other securities may not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. There are also no established trading markets for a majority of our intended investments. Moreover, certain of our investments, including our investments in consumer loans Servicer Advance Investments and certain investmentsof our interests in MSRs and Excess MSRs, are made indirectly through a vehicle that owns the underlying assets. Our ability to sell our interest may be contractually limited or prohibited. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be limited.


Our real estate relatedand other securities have historically been valued based primarily on third-party quotations, which are subject to significant variability based on the liquidity and price transparency created by market trading activity. A disruption in these trading markets, including due to COVID-19, could reduce the trading for many real estate relatedand other securities, resulting in less transparent prices for those securities, which would make selling such assets more difficult. Moreover, a decline in market demand for the types of assets that we hold would make it more difficult to sell our assets. If we are required to liquidate all or a portion of our illiquid investments quickly, we may realize significantly less than the amount at which we have previously valued these investments.


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Market conditions could negatively impact our business, results of operations, cash flows and financial condition.


The market in which we operate is affected by a number of factors that are largely beyond our control but can nonetheless have a potentially significant, negative impact on us. These factors include, among other things:
 
•the uncertainty and economic impact of the COVID-19 pandemic, including liquidity, impact on the value of assets and availability of financing;
•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 and credit losses with respect to our investments;
•the ability to obtain accurate market-based valuations;
•volatility associated with asset valuations and margin calls;
•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;losses, and credit losses with respect to our investments;
•prepayment and repayment rates, delinquency rates and legislative/regulatory changes with respect to our investments, in MSRs, Excess MSRs, Servicer Advance Investments, RMBS, and loans, and the timing and amount of servicer advances;
•the availability and cost of quality servicers and subservicers,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;
the impact of potential changes to the tax code;
•unemployment rates; and
•the attractiveness of other types of investments relative to investments in real estate or REITs generally.


Changes in these factors are difficult to predict, and a change in one factor can affect other factors. For example, the full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions and uncertainty with respect to the duration of the global economic slowdown. Further, at various points in time, increased default rates in the subprime mortgage market played a role in causing credit spreads to widen, reducing availability of credit on favorable terms, reducing liquidity and price transparency of real estate related assets, resulting in difficulty in obtaining accurate mark-to-market valuations, and causing a negative perception of the state of the real estate markets and of REITs generally. While marketMarket conditions have generally improved since 2008, theycould be volatile or could deteriorate as a result of a variety of factors beyond our control with adverse effects to our financial condition.


The geographic distribution of the loans underlying, and collateral securing, certain of our investments subjects us to geographic real estate market risks, which could adversely affect the performance of our investments, our results of operations and financial condition.


The geographic distribution of the loans underlying, and collateral securing, our investments, including our interests in MSRs, Excess MSRs, Servicer Advance Investments, Services Advances Receivable, Non-Agency RMBSservicer advances, and loans, exposes us to risks associated with the real estate and commercial lending industry in general within the states and regions in which we hold significant investments. These risks include, without limitation: possible declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; increases in competition, property taxes and operating expenses; changes in zoning laws; increased energy costs; unemployment; costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental problems; casualty or condemnation losses; uninsured damages from floods, hurricanes, earthquakes or other natural disasters; and changes in interest rates.




As of September 30, 2017, 24.1%2021, 24.7% and 19.0%18.4% of the total UPB of the residential mortgage loans underlying our Excess MSRs and MSRs, respectively, was secured by properties located in California, which are particularly susceptible to natural disasters such as fires, earthquakes and mudslides. 8.6%7.5% and 6.0%8.5% of the total UPB of the residential mortgage loans underlying our Excess MSRs and MSRs, respectively, was secured by properties located in Florida, which are particularly susceptible to natural disasters such as hurricanes and floods. AsIn addition, certain states continued to report increasing rates of September 30, 2017, 38.5% of the collateral securing our Non-Agency RMBS was located in the Western U.S., 23.8% was located in the Southeastern U.S., 19.8% was located in the Northeastern U.S., 10.6% was located in the Midwestern U.S. and 7.2% was located in the Southwestern U.S. We were unable to obtain geographical information for 0.1% of the collateral.COVID-19 infections. As a result of this concentration, we may be more susceptible to adverse developments in those markets than if we owned a more geographically diverse portfolio. To the extent any of the foregoing risks arise in states and regions where we hold significant investments, the performance of our investments, our results of operations, cash flows and financial condition could suffer a material adverse effect.


Many of the RMBS in which we invest are collateralized by subprime mortgage loans, which are subject to increased risks.
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Many of the RMBS in which we invest are backed by collateral pools of subprime residential mortgage loans. “Subprime” mortgage loans refer to mortgage loans that have been originated using underwriting standards that are less restrictive than the underwriting requirements used as standards for other first and junior lien mortgage loan purchase programs, such as the programs of Fannie Mae and Freddie Mac. These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories (including outstanding judgments or prior bankruptcies), mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgage property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represents a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified. Due to economic conditions, including increased interest rates and lower home prices, as well as aggressive lending practices, subprime mortgage loans have in recent periods experienced significant rates of delinquency, foreclosure, bankruptcy and loss, and they are likely to continue to experience delinquency, foreclosure, bankruptcy and loss rates that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. Thus, because of the higher delinquency rates and losses associated with subprime mortgage loans, the performance of RMBS backed by subprime mortgage loans could be correspondingly adversely affected, which could adversely impact our results of operations, liquidity, financial condition and business.

The value of our interests in MSRs, Excess MSRs, Servicer Advance Investments, Servicer Advances Receivableservicer advances, residential mortgage loans and RMBS may be adversely affected by deficiencies in servicing and foreclosure practices, as well as related delays in the foreclosure process.


Allegations of deficiencies in servicing and foreclosure practices among several large sellers and servicers of residential mortgage loans that surfaced in 2010 raised various concerns relating to such practices, including the improper execution of the documents used in foreclosure proceedings (so-called “robo signing”), inadequate documentation of transfers and registrations of mortgages and assignments of loans, improper modifications of loans, violations of representations and warranties at the date of securitization and failure to enforce put-backs.


As a result of alleged deficiencies in foreclosure practices, a number of servicers temporarily suspended foreclosure proceedings beginning in the second half of 2010 while they evaluated their foreclosure practices. In late 2010, a group of state attorneys general and state bank and mortgage regulators representing nearly all 50 states and the District of Columbia, along with the U.S. Justice Department and HUD, began an investigation into foreclosure practices of banks and servicers. The investigations and lawsuits by several state attorneys general led to a settlement agreement in early February 2012 with five of the nation’s largest banks, pursuant to which the banks agreed to pay more than $25.0 billion to settle claims relating to improper foreclosure practices. The settlement does not prohibit the states, the federal government, individuals or investors from pursuing additional actions against the banks and servicers in the future.


Under the terms of the agreements governing our Servicer Advance Investments and MSRs, we (in certain cases, together with third-party co-investors) are required to make or purchase from Nationstar, Ocwen, Ditech andcertain of our other servicers,Servicing Partners, servicer advances on certain loan pools. While a residential mortgage loan is in foreclosure, servicers are generally required to continue to advance delinquent principal and interest and to also make advances for delinquent taxes and insurance and foreclosure costs and the upkeep of vacant property in foreclosure to the extent it determines that such amounts are recoverable. Servicer advances are generally recovered when the delinquency is resolved.


Foreclosure moratoria or other actions that lengthen the foreclosure process increase the amount of servicer advances we or our servicersServicing Partners are required to make and we are required to purchase, lengthen the time it takes for us to be repaid for such advances and increase the costs incurred during the foreclosure process. In addition, servicer advance financing facilities contain provisions that modify the advance rates for, and limit the eligibility of, servicer advances to be financed based on the length of time that servicer advances are outstanding, and, as a result, an increase in foreclosure timelines could further increase the amount of servicer advances that


we need to fund with our own capital. Such increases in foreclosure timelines could increase our need for capital to fund servicer advances (which do not bear interest), which would increase our interest expense, reduce the value of our investment and potentially reduce the cash that we have available to pay our operating expenses or to pay dividends.


Even in states where servicers have not suspended foreclosure proceedings or have lifted (or will soon lift) any such delayed foreclosures, servicers, including Nationstar, Ocwen, Ditech and our other servicers,Servicing Partners, have faced, and may continue to face, increased delays and costs in the foreclosure process. For example, the current legislative and regulatory climate could lead borrowers to contest foreclosures that they would not otherwise have contested under ordinary circumstances, and servicers may incur increased litigation costs if the validity of a foreclosure action is challenged by a borrower. In general, regulatory developments with respect to foreclosure practices could result in increases in the amount of servicer advances and the length of time to recover servicer advances, fines or increases in operating expenses, and decreases in the advance rate and availability of financing for servicer advances. This would lead to increased borrowings, reduced cash and higher interest expense which could negatively impact our liquidity and profitability. Although the terms of our Servicer Advance Investments contain adjustment mechanisms that would reduce the amount of performance fees payable to the related servicerServicing Partner if servicer advances exceed pre-determined amounts, those fee reductions may not be sufficient to cover the expenses resulting from longer foreclosure timelines.


The integrity of the servicing and foreclosure processes is critical to the value of the residential mortgage loanloans in which we invest and of the portfolios of loans underlying our interests in MSRs Excess MSRs, Servicer Advance Investments, Servicer Advances Receivables and RMBS, and our financial results could be adversely affected by deficiencies in the conduct of those processes. For example, delays in the foreclosure process that have resulted from investigations into improper servicing practices may adversely affect the values of, and result in losses on, these investments. Foreclosure delays may also increase the administrative expenses of the securitization trusts for the RMBS, thereby reducing the amount of funds available for distribution to investors.


In addition, the subordinate classes of securities issued by the securitization trusts may continue to receive interest payments while the defaulted loans remain in the trusts, rather than absorbing the default losses. This may reduce the amount of credit support available for the senior classes of RMBS that we may own, thus possibly adversely affecting these securities. Additionally, a substantial portion of the $25.0 billion settlement is a “credit” to the banks and servicers for principal write-downs or reductions they may make to certain mortgages underlying RMBS. There remains uncertainty as to how these principal
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reductions will work and what effect they will have on the value of related RMBS. As a result, there can be no assurance that any such principal reductions will not adversely affect the value of our interests in MSRs Excess MSRs, Servicer Advance Investments, Servicer Advances Receivable and RMBS.


While we believe that the sellers and servicers would be in violation of the applicable Servicing Guidelines to the extent that they have improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive, time consuming and, ultimately, uneconomic for us to enforce our contractual rights. While we cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect our business, there can be no assurance that these matters will not have an adverse impact on our results of operations, cash flows and financial condition.


A failure by any or all of the members of Buyer to make capital contributions for amounts required to fund servicer advances could result in an event of default under our advance facilities and a complete loss of our investment.


As described in Note 6 to our Condensed Consolidated Financial Statements, New Residential and third-party co-investors, through a joint venture entity (Advance Purchaser LLC, the “Buyer”) have agreed to purchase all future arising servicer advances from NationstarMr. Cooper under certain residential mortgage servicing agreements. Buyer relies, in part, on its members to make committed capital contributions in order to pay the purchase price for future servicer advances. A failure by any or all of the members to make such capital contributions for amounts required to fund servicer advances could result in an event of default under our advance facilities and a complete loss of our investment.


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.


Mortgage backed securities are securities backed by mortgage loans. The ability of borrowers to repay these mortgage loans is dependent upon the income or assets of these borrowers. If a borrower has insufficient income or assets to repay these loans, it will default on its loan. Our investments in RMBS will be adversely affected by defaults under the loans underlying such securities. To the extent losses are realized on the loans underlying the securities in which we invest, we may not recover the amount invested in, or, in extreme cases, any of our investment in such securities.



Residential mortgage loans, manufactured housing loans and subprime mortgage loans are secured by single-family residential property and are also subject to risks of delinquency and foreclosure, and risks of loss. The ability of a borrower to repay a loan secured by a residential property is dependent upon the income or assets of the borrower. A number of factors may impair borrowers’ abilities to repay their loans, including, among other things, changes in the borrower’s employment status, changes in national, regional or local economic conditions, changes in interest rates or the availability of credit on favorable terms, changes in regional or local real estate values, changes in regional or local rental rates and changes in real estate taxes. The impact of the COVID-19 crisis may impair borrowers’ ability to repay their loans, particularly if the impact were to be sustained.


Our mortgage backed securities are securities backed by mortgage loans. Many of the RMBS in which we invest are backed by collateral pools of subprime residential mortgage loans. “Subprime” mortgage loans refer to mortgage loans that have been originated using underwriting standards that are less restrictive than the underwriting requirements used as standards for other first and junior lien mortgage loan purchase programs, such as the programs of Fannie Mae and Freddie Mac. These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories (including outstanding judgments or prior bankruptcies), mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgage property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represents a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified. Subprime mortgage loans may experience delinquency, foreclosure, bankruptcy and loss rates that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. To the extent losses are realized on the loans underlying the securities in which we invest, we may not recover the amount invested in, or, in extreme cases, any of our investment in such securities.

Residential mortgage loans, including manufactured housing loans and subprime mortgage loans are secured by single-family residential property and are also subject to risks of delinquency and foreclosure, and risks of loss. A significant portion of the residential mortgage loans that we acquire are, or may become, sub-performing loans, non-performing loans or REO assets where the borrower has failed to make timely payments of principal and/or interest. As part of the residential mortgage loan portfolios we purchase, we also may acquire performing loans that are or subsequently become sub-performing or non-performing, meaning the borrowers fail to timely pay some or all of the required payments of principal and/or interest. Under current market conditions, it is likely that some of these loans will have current loan-to-value ratios in excess of 100%, meaning the amount owed on the loan exceeds the value of the underlying real estate.

In the event of default under a residential mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the outstanding principal and accrued but unpaid interest of the loan,loan. Even though we typically pay less than the amount owed on these loans to acquire them, if actual results differ from our assumptions in determining the price we paid to acquire such loans, we may incur significant losses. In addition, we may acquire REO assets directly, which involves the same risks. Any loss we incur may be significant and could materially and adversely affect our results of operations, cash flows and financial condition.us.


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Our investments in real estate relatedand other securities are subject to changes in credit spreads as well as available market liquidity, which could adversely affect our ability to realize gains on the sale of such investments.


Real estate relatedand other securities are subject to changes in credit spreads. Credit spreads measure the yield demanded on securities by the market based on their credit relative to a specific benchmark. The significant dislocation in the financial markets due to COVID-19 has caused, among other things, credit spread widening.


Fixed rate securities are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasuries of like maturity. Floating rate securities are valued based on a market credit spread over LIBOR and are affected similarly by changes in LIBOR spreads. As of September 30, 2017, 92.0%2021, 29.5% of our Non-Agency RMBS Portfolio consisted of floating rate securities and 8.0%70.5% consisted of fixed rate securities, and 10.4%100.0% of our Agency RMBS portfolio consisted of floating rate securities and 89.6% consisted of fixed rate securities, based on the amortized cost basis of all securities (including the amortized cost basis of interest-only and residual classes). Excessive supply of these securities combined with reduced demand will generally cause the market to require a higher yield on these securities, resulting in the use of a higher, or “wider,” spread over the benchmark rate to value such securities. Under such conditions, the value of our real estate relatedand other securities portfolios would tend to decline. Conversely, if the spread used to value such securities were to decrease, or “tighten,” the value of our real estate relatedand other securities portfolio would tend to increase. Such changes in the market value of our real estate securities portfolios may affect our net equity, net income or cash flow directly through their impact on unrealized gains or losses on available-for-sale securities, and therefore our ability to realize gains on such securities, or indirectly through their impact on our ability to borrow and access capital. Widening credit spreads could cause the net unrealized gains on our securities and derivatives, recorded in accumulated other comprehensive income or retained earnings, and therefore our book value per share, to decrease and result in net losses.


Prepayment rates on theour residential mortgage loans and those underlying our real estate relatedand other securities may adversely affect our profitability.


In general, the residential mortgage loans backing our real estate related securities may be prepaid at any time without penalty. Prepayments on our real estate related securities result when homeowners/mortgagors satisfy (i.e., pay off) the mortgage upon selling or refinancing their mortgaged property. When we acquire a particular loan or security, we anticipate that the loan or underlying residential mortgage loans will prepay at a projected rate which, together with expected coupon income, provides us with an expected yield on such securities.investments. If we purchase assets at a premium to par value, and borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on the real estate related securityour assets may reduce the expected yield on such securitiesassets because we will have to amortize the related premium on an accelerated basis. Conversely, if we purchase assets at a discount to par value, when borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments on the real estate related securityour assets may reduce the expected yield on such securitiesassets because we will not be able to accrete the related discount as quickly as originally anticipated.


Prepayment rates on loans are influenced by changes in mortgage and market interest rates and a variety of economic, geographic, political and other factors, all of which are beyond our control. Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or other such risks. In periods of declining interest rates, such as during the COVID-19 pandemic, prepayment rates on mortgage loans generally increase. If general interest rates decline at the same time, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the assets that were prepaid. In addition, the market value of our loans and real estate relatedand other securities may, because of the risk of prepayment, benefit less than other fixed-income securities from declining interest rates.


With respect to Agency RMBS, weWe may purchase securitiesassets that have a higher or lower coupon rate than the prevailing market interest rates. In exchange for a higher coupon rate, we would then pay a premium over par value to acquire these securities. In accordance with GAAP, we would amortize the premiums on our Agency RMBS over the life of the related securities.assets. If the mortgage loans securing these securitiesassets prepay at a more rapid rate than anticipated, we would have to amortize our premiums on an accelerated basis which may adversely affect our profitability. As compensation for a lower coupon rate, we would then pay


a discount to par value to acquire these securities.assets. In accordance with GAAP, we would accrete any discounts on our Agency RMBS over the life of the related securities.assets. If the mortgage loans securing these securitiesassets prepay at a slower rate than anticipated, we would have to accrete our discounts on an extended basis which may adversely affect our profitability. Defaults on the mortgage loans underlying Agency RMBS typically have the same effect as prepayments because of the underlying Agency guarantee.


Prepayments, which are the primary feature of mortgage backed securities that distinguish them from other types of bonds, are difficult to predict and can vary significantly over time. As the holder of the security, on a monthly basis, we receive a payment equal to a portion of our investment principal in a particular security as the underlying mortgages are prepaid. In general, on the date each month that principal prepayments are announced (i.e., factor day), the value of our real estate related security pledged as collateral under our repurchase agreements is reduced by the amount of the prepaid principal and, as a result, our lenders will
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typically initiate a margin call requiring the pledge of additional collateral or cash, in an amount equal to such prepaid principal, in order to re-establish the required ratio of borrowing to collateral value under such repurchase agreements. Accordingly, with respect to our Agency RMBS, the announcement on factor day of principal prepayments is in advance of our receipt of the related scheduled payment, thereby creating a short-term receivable for us in the amount of any such principal prepayments. However, under our repurchase agreements, we may receive a margin call relating to the related reduction in value of our Agency RMBS and, prior to receipt of this short-term receivable, be required to post additional collateral or cash in the amount of the principal prepayment on or about factor day, which would reduce our liquidity during the period in which the short-term receivable is outstanding. As a result, in order to meet any such margin calls, we could be forced to sell assets in order to maintain liquidity. Forced sales under adverse market conditions may result in lower sales prices than ordinary market sales made in the normal course of business. If our real estate relatedand other securities were liquidated at prices below our amortized cost (i.e., the cost basis) of such assets, we would incur losses, which could adversely affect our earnings. In addition, in order to continue to earn a return on this prepaid principal, we must reinvest it in additional real estate relatedand other securities or other assets; however, if interest rates decline, we may earn a lower return on our new investments as compared to the real estate relatedand other securities that prepay.


Prepayments may have a negative impact on our financial results, the effects of which depend on, among other things, the timing and amount of the prepayment delay on our Agency RMBS, the amount of unamortized premium or discount on our loans and real estate relatedand other securities, the rate at which prepayments are made on our Non-Agency RMBS, the reinvestment lag and the availability of suitable reinvestment opportunities.


Our investments in residential mortgage loans, REO and RMBS may be subject to significant impairment charges, which would adversely affect our results of operations.


We will beare required to periodically evaluate our investments for impairment indicators. The value of an investment is impaired when our analysis indicates that, with respect to a security, it is probable that the value of the security is other-than-temporarily impaired. The judgment regarding the existence of impairment indicators is based on a variety of factors depending upon the nature of the investment and the manner in which the income related to such investment was calculated for purposes of our financial statements. If we determine that an impairment has occurred, we are required to make an adjustment to the net carrying value of the investment, which would adversely affect our results of operations in the applicable period and thereby adversely affect our ability to pay dividends to our stockholders.


The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.

The agreements governing our indebtedness, including, but not limited to, the indenture governing our 2025 Senior Notes, contain covenants that place restrictions on us and our subsidiaries. The indenture governing our 2025 Senior Notes restricts among other things, our and certain of our subsidiaries’ ability to:

•incur certain additional debt;
•make certain investments or acquisitions;
•create certain liens on our or our subsidiaries’ assets;
•sell assets; and
•merge, consolidate or transfer all or substantially all of our assets.

These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. A breach of any of these covenants could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders or holders thereof could elect to declare all outstanding debt under such agreements to be immediately due and payable.

The lenders under our repurchasefinancing agreements may elect not to extend financing to us, which could quickly and seriously impair our liquidity.


We finance a meaningful portion of our investments in RMBS with repurchase agreements which areand other short-term financing arrangements. Under the terms of theserepurchase agreements, we will sell a securityan asset to the lending counterparty for a specified price and concurrently agree to repurchase the same securityasset from our counterparty at a later date for a higher specified price. During the term of the repurchase agreement—which can be as short as 30 days—the counterparty will make funds available to us and hold the securityasset as collateral. Our counterparties can also require us to post additional margin as collateral at any time during the term of the agreement. When the term of a repurchase agreement ends, we will be required to repurchase the securityasset for the specified repurchase price, with the difference between the sale and repurchase prices serving as the equivalent of paying
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interest to the counterparty in return for extending financing to us. If we want to continue to finance the securityasset with a repurchase agreement, we ask the counterparty to extend—or “roll”—the repurchase agreement for another term.


Our counterparties are not required to roll our repurchase agreements or other financing agreements upon the expiration of their stated terms, which subjects us to a number of risks. Counterparties electing to roll our repurchasefinancing agreements may charge higher spread and impose more onerous terms upon us, including the requirement that we post additional margin as collateral. More significantly, if a repurchasefinancing agreement counterparty elects not to extend our financing, we would be required to pay the counterparty thein full repurchase price on the maturity date and find an alternate source of financing. Alternate sources of financing may be more expensive, contain more onerous terms or simply may not be available. If we were unable to pay the repurchase price for any securityasset financed with a


repurchase agreement, the counterparty has the right to sell the underlying securityasset being held as collateral and require us to compensate it for any shortfall between the value of our obligation to the counterparty and the amount for which the collateral was sold (which may be a significantly discounted price). As of September 30, 2017, we had outstanding repurchase agreements with an aggregate face amount of approximately $4.3 billion to finance Non-Agency RMBS and approximately $1.8 billion to finance Agency RMBS and related trades receivable. Moreover, our repurchasefinancing agreement obligations are currently with a limited number of counterparties. If any of our counterparties elected not to roll our repurchasefinancing agreements, we may not be able to find a replacement counterparty in a timely manner. Finally, some of our repurchasefinancing agreements contain covenants and our failure to comply with such covenants could result in a loss of our investment.


The financing sources under our servicer advance financing facilities may elect not to extend financing to us or may have or take positions adverse to us, which could quickly and seriously impair our liquidity.


We finance a meaningful portion of our Servicer Advance Investments and Servicer Advances Receivableservicer advance receivables with structured financing arrangements. These arrangements are commonly of a short-term nature. These arrangements are generally accomplished by having the named servicer, if the named servicer is a subsidiary of the Company, or the purchaser of such Servicer Advance Investments (which is a subsidiary of the Company) transfer our right to repayment for certain servicer advances that we have as servicer under the relevant Servicing Guidelines or that we have acquired from one of our mortgage servicers,Servicing Partners, as applicable, to one of our wholly owned bankruptcy remote subsidiaries (a “Depositor”). We are generally required to continue to transfer to the related Depositor all of our rights to repayment for any particular pool of servicer advances as they arise (and, if applicable, are transferred from one of our mortgage servicers)Servicing Partners) until the related financing arrangement is paid in full and is terminated. The related Depositor then transfers such rights to an “Issuer.” The Issuer then issues limited recourse notes to the financing sources backed by such rights to repayment.


The outstanding balance of servicer advancesadvance receivables securing these arrangements is not likely to be repaid on or before the maturity date of such financing arrangements. Accordingly, we rely heavily on our financing sources to extend or refinance the terms of such financing arrangements. Our financing sources are not required to extend the arrangements upon the expiration of their stated terms, which subjects us to a number of risks. Financing sources electing to extend may charge higher interest rates and impose more onerous terms upon us, including without limitation, lowering the amount of financing that can be extended against any particular pool of servicer advances.


If a financing source is unable or unwilling to extend financing, including, but not limited to, due to legal or regulatory matters applicable to us or our mortgage servicers,Servicing Partners, the related Issuer will be required to repay the outstanding balance of the financing on the related maturity date. Additionally, there may be substantial increases in the interest rates under a financing arrangement if the related notes are not repaid, extended or refinanced prior to the expected repayment dated, which may be before the related maturity date. If an Issuer is unable to pay the outstanding balance of the notes, the financing sources generally have the right to foreclose on the servicer advances pledged as collateral.


As of September 30, 2017,Currently, certain of the notes issued under our structured servicer advance financing arrangements accruedaccrue interest at a floating rate of interest. Servicer advancesadvance receivables are non-interest bearing assets. Accordingly, if there is an increase in prevailing interest rates and/or our financing sources increase the interest rate “margins” or “spreads.“spreads,” the amount of financing that we could obtain against any particular pool of servicer advances may decrease substantially and/or we may be required to obtain interest rate hedging arrangements. There is no assurance that we will be able to obtain any such interest rate hedging arrangements.


Alternate sources of financing may be more expensive, contain more onerous terms or simply may not be available. Moreover, our structured servicer advance financing arrangements are currently with a limited number of counterparties. If any of our sources are unable to or elected not to extend or refinance such arrangements, we may not be able to find a replacement counterparty in a timely manner.


Many of our servicer advance financing arrangements are provided by financial institutions with whom we have substantial relationships. Some of our servicer advance financing arrangements entail the issuance of term notes to capital markets investors with whom we have little or no relationships or the identities of which we may not be aware and, therefore, we have
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no ability to control or monitor the identity of the holders of such term notes. Holders of such term notes may have or may take positions - for example, “short” positions in our stock or the stock of our servicers - that could be benefited by adverse events with respect to us or our servicers.Servicing Partners. If any holders of term notes allege or assert noncompliance by us or the related servicerServicing Partner under our servicer advance financing arrangements in order to realize such benefits, we or our servicers,Servicing Partners, or our ability to maintain servicer advance financing on favorable terms, could be materially and adversely affected.



In order to continue to finance servicer advances and deferred servicing fees arising in connection with the Ocwen Subject MSRs upon any transfer in connection with the Ocwen Transaction, we will need to amend our existing servicer advance financing facilities (or establish new servicer advance financing facilities) related to the Ocwen Subject MSRs to permit such continued financing. There is no assurance we will able to do so on favorable terms or at all. As of September 30, 2017, we had borrowed $2.6 billion against approximately $3.1 billion of servicer advances and deferred servicing fees arising under the Ocwen Subject MSRs that had not yet been transferred. Our obligation to pay Ocwen lump sum payments in connection with any transfer of interests in the Ocwen Subject MSRs in connection with the Ocwen Transaction is not conditioned on having such servicer advance financings amended (or having new servicer advance financing facilities established).


We may not be able to finance our investments on attractive terms or at all, and financing for MSRs, Excessinterests in MSRs or servicer advancesadvance receivables may be particularly difficult to obtain.


The ability to finance investments with securitizations or other long-term non-recourse financing not subject to margin requirements has been more challenging since 2007 as a result of market conditions. These conditions may result in having to use less efficient forms of financing for any new investments, or the refinancing of current investments, which will likely require a larger portion of our cash flows to be put toward making the initial investment and thereby reduce the amount of cash available for distribution to our stockholders and funds available for operations and investments, and which will also likely require us to assume higher levels of risk when financing our investments. In addition, there is a limited market for financing of investmentsinterests in MSRs and Excess MSRs, and it is possible that one will not develop for a variety of reasons, such as the challenges with perfecting security interests in the underlying collateral.


Certain of our advance facilities may mature in the short term, and there can be no assurance that we will be able to renew these facilities on favorable terms or at all. Moreover, an increase in delinquencies with respect to the loans underlying our servicer advancesadvance receivables could result in the need for additional financing, which may not be available to us on favorable terms or at all. If we are not able to obtain adequate financing to purchase servicer advancesadvance receivables from our servicersServicing Partners or fund servicer advances under our MSRs in accordance with the applicable Servicing Guidelines, we or any such servicer,Servicing Partner, as applicable, could default on its obligation to fund such advances, which could result in its termination of us or any applicable servicer,Servicing Partner, as applicable, as servicer under the applicable Servicing Guidelines, and a partial or total loss of our Servicer Advance Investments, Servicer Advances Receivable,interests in MSRs and Excess MSRs,servicer advances, as applicable.


The non-recourse long-term financing structures we use expose us to risks, which could result in losses to us.


We use structured finance and other non-recourse long-term financing for our investments to the extent available and appropriate. In such structures, our financing sources typically have only a claim against the assets included in the securitizations rather than a general claim against us as an entity. Prior to any such financing, we would seek to finance our investments with relatively short-term facilities until a sufficient portfolio is accumulated. As a result, we would be subject to the risk that we would not be able to acquire, during the period that any short-term facilities are available, sufficient eligible assets or securities to maximize the efficiency of a securitization. We also bear the risk that we would not be able to obtain new short-term facilities or would not be able to renew any short-term facilities after they expire should we need more time to seek and acquire sufficient eligible assets or securities for a securitization. In addition, conditions in the capital markets may make the issuance of any such securitization less attractive to us even when we do have sufficient eligible assets or securities. While we would generally intend to retain a portion of the unrated equity component ofinterests issued under such securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations may increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default. Our inability to refinance any short-term facilities would also increase our risk because borrowings thereunder would likely be recourse to us as an entity. If we are unable to obtain and renew short-term facilities or to consummate securitizations to finance our investments on a long-term basis, we may be required to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price.


The final Basel FRTB Ruling, which raised capital charges for bank holders of ABS, CMBS and Non-Agency MBSRMBS beginning in 2019, could adversely impact available trading liquidity and access to financing.


In January 2006, the Basel Committee on Banking Supervision released a finalized framework for calculating minimum capital requirements for market risk, which will take effectbecame effective in January 2019. In the final proposal, capital requirements would overall be meaningfully higher than current requirements, but are less punitive than the previous December 2014 proposal. However, each country’s specific regulator may codify the rules differently. Under the framework, capital charges on a bond are calculated based on three components: default, market and residual risk. Implementation of the final proposal could impose meaningfully higher capital charges on dealers compared with current requirements, and could reduce liquidity in the securitized products market.



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Risks associated with our investment in the consumer loan sector could have a material adverse effect on our business and financial results.


Our portfolio includes an investment in the consumer loan sector. Although many of the risks applicable to consumer loans are also applicable to residential mortgage loans, and thus the type of risks that we have experience managing, there are nevertheless substantial risks and uncertainties associated with engaging in a newdifferent category of investment. There may be factors that affect the consumer loan sector with which we are not as familiar compared to the residential mortgage loan sector. Moreover, our underwriting assumptions for these investments may prove to be materially incorrect. It is also possible that the addition of consumer loans to our investment portfolio could divert our Manager’s time away from our other investments. Furthermore, external factors, such as compliance with regulations, may also impact our ability to succeed in the consumer loan investment sector. Failure to successfully manage these risks could have a material adverse effect on our business and financial results.

The consumer loans we invest in are subject to delinquency and loss, which could have a negative impact on our financial results.


The ability of borrowers to repay the consumer loans we invest in may be adversely affected by numerous personal factors, including unemployment, divorce, major medical expenses or personal bankruptcy. General factors, including an economic downturn, high energy costs or acts of God or terrorism, may also affect the financial stability of borrowers and impair their ability or willingness to repay the consumer loans in our investment portfolio. Furthermore, our returns on our consumer loan investments are dependent on the interest we receive exceeding any losses we may incur from defaults or delinquencies. The relatively higher interest rates paid by consumer loan borrowers could lead to increased delinquencies and defaults, or could lead to financially stronger borrowers prepaying their loans, thereby reducing the interest we receive from them, while financially weaker borrowers become delinquent or default, either of which would reduce the return on our investment or could cause losses.

In the event of any default under a loan in the consumer loan portfolio in which we have invested, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral securing the loan, if any, and the principal and accrued interest of the loan. In addition, our investments in consumer loans may entail greater risk than our investments in residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. Further, repossessing personal property securing a consumer loan can present additional challenges, including locating the collateral and taking possession of it. In addition, borrowers under consumer loans may have lower credit scores. There can be no guarantee that we will not suffer unexpected losses on our investments as a result of the factors set out above, which could have a negative impact on our financial results.


The servicer of the loans underlying our consumer loan investment may not be able to accurately track the default status of senior lien loans in instances where our consumer loan investments are secured by second or third liens on real estate.

AIn addition, a portion of our investment in consumer loans is secured by second and third liens on real estate. When we hold the second or third lien, another creditor or creditors, as applicable, holds the first and/or second, as applicable, lien on the real estate that is the subject of the security. In these situations our second or third lien is subordinate in right of payment to the first and/or second, as applicable, holder’s right to receive payment. Moreover, as the servicer of the loans underlying our consumer loan portfolio is not able to track the default status of a senior lien loan in instances where we do not hold the related first mortgage, the value of the second or third lien loans in our portfolio may be lower than our estimates indicate.


Finally, one of our consumer loan investments is held through LoanCo, in which we hold a minority, non-controlling interest. We do not control LoanCo and, as a result, LoanCo may make decisions, or take risks, that we would otherwise not make, and LoanCo may not have access to the same management and financing expertise that we have. Failure to successfully manage these risks could have a material adverse effect on our business and financial results.

The consumer loan investment sector is subject to various initiatives on the part of advocacy groups and extensive regulation and supervision under federal, state and local laws, ordinances and regulations, which could have a negative impact on our financial results.


In recent years consumer advocacy groups and some media reports have advocated governmental action to prohibit or place severe restrictions on the types of short-term consumer loans in which we have invested. Such consumer advocacy groups and media reports generally focus on the annual percentage rate to a consumer for this type of loan, which is compared unfavorably to the interest typically charged by banks to consumers with top-tier credit histories.


The fees charged on the consumer loans in the portfolio in which we have invested may be perceived as controversial by those who do not focus on the credit risk and high transaction costs typically associated with this type of investment. If the negative characterization of these types of loans becomes increasingly accepted by consumers, demand for the consumer loan products in which we have invested could significantly decrease. Additionally, if the negative characterization of these types of loans is accepted by legislators and regulators, we could become subject to more restrictive laws and regulations in the area.


In addition, we are, or may become, subject to federal, state and local laws, regulations, or regulatory policies and practices, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) (which, among other things, established the CFPB with broad authority to regulate and examine financial institutions), which may, amongst other things, limit the amount of interest or fees allowed to be charged on the consumer loans we invest in, or the number of consumer loans that


customers may receive or have outstanding. The operation
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of existing or future laws, ordinances and regulations could interfere with the focus of our investments which could have a negative impact on our financial results.

A significant portion of the residential mortgage loans that we acquire are, or may become, sub-performing loans, non-performing loans or REO assets, which increases our risk of loss.

We acquire distressed residential mortgage loans where the borrower has failed to make timely payments of principal and/or interest. As part of the residential mortgage loan portfolios we purchase, we also may acquire performing loans that are or subsequently become sub-performing or non-performing, meaning the borrowers fail to timely pay some or all of the required payments of principal and/or interest. Under current market conditions, it is likely that some of these loans will have current loan-to-value ratios in excess of 100%, meaning the amount owed on the loan exceeds the value of the underlying real estate.

The borrowers on sub-performing or non-performing loans may be in economic distress and may have become unemployed, bankrupt or otherwise unable or unwilling to make payments when due. Borrowers may also face difficulties with refinancing such loans, including due to reduced availability of refinancing alternatives and insufficient equity in their homes to permit them to refinance. Increases in mortgage interest rates would exacerbate these difficulties. We may need to foreclose on collateral securing such loans, and the foreclosure process can be lengthy and expensive. Furthermore, REO assets (i.e., real estate owned by the lender upon completion of the foreclosure process) are relatively illiquid, and we may not be able to sell such REO assets on terms acceptable to us or at all.

Even though we typically pay less than the amount owed on these loans to acquire them, if actual results differ from our assumptions in determining the price we paid to acquire such loans, we may incur significant losses. Any loss we incur may be significant and could materially and adversely affect us.


Certain jurisdictions require licenses to purchase, hold, enforce or sell residential mortgage loans and/or MSRs, and we may not be able to obtain and/or maintain such licenses.


Certain jurisdictions require a license to purchase, hold, enforce or sell residential mortgage loans and/or MSRs. We currently hold some but not all such licenses. In the event that any licensing requirement is applicable to us, and we do not hold such licenses, there can be no assurance that we will obtain such licenses or, if obtained, that we will be able to maintain them. Our failure to obtain or maintain such licenses could restrict our ability to invest in loans in these jurisdictions if such licensing requirements are applicable. With respect to mortgage loans, in lieu of obtaining such licenses, we may contribute our acquired residential mortgage loans to one or more wholly owned trusts whose trustee is a national bank, which may be exempt from state licensing requirements. We have formed one or more subsidiaries to apply for certain state licenses. If these subsidiaries obtain the required licenses, any trust holding loans in the applicable jurisdictions may transfer such loans to such subsidiaries, resulting in these loans being held by a state-licensed entity. There can be no assurance that we will be able to obtain the requisite licenses in a timely manner or at all or in all necessary jurisdictions, or that the use of the trusts will reduce the requirement for licensing. In addition, even if we obtain necessary licenses, we may not be able to maintain them. Any of these circumstances could limit our ability to invest in residential mortgage loans or MSRs in the future and have a material adverse effect on us.


Our determination of how much leverage to apply to our investments may adversely affect our return on our investments and may reduce cash available for distribution.


We leverage certain of our assets through a variety of borrowings. Our investment guidelines do not limit the amount of leverage we may incur with respect to any specific asset or pool of assets. The return we are able to earn on our investments and cash available for distribution to our stockholders may be significantly reduced due to changes in market conditions, which may cause the cost of our financing to increase relative to the income that can be derived from our assets.


A significant portion of our investments are not match funded, which may increase the risks associated with these investments.


When available, a match funding strategy mitigates the risk of not being able to refinance an investment on favorable terms or at all. However, our Manager may elect for us to bear a level of refinancing risk on a short-term or longer-term basis, as in the case of investments financed with repurchase agreements, when, based on its analysis, our Manager determines that bearing such risk is advisable or unavoidable. In addition, we may be unable, as a result of conditions in the credit markets, to match fund our investments. For example, since the 2008 recession, non-recourse term financing not subject to margin requirements has been more difficult to obtain, which impairs our ability to match fund our investments. Moreover, we may not be able to enter into interest rate swaps. A decision not to, or the inability to, match fund certain investments exposes us to additional risks.




Furthermore, we anticipate that, in most cases, for any period during which our floating rate assets are not match funded with respect to maturity, the income from such assets may respond more slowly to interest rate fluctuations than the cost of our borrowings. Because of this dynamic, interest income from such investments may rise more slowly than the related interest expense, with a consequent decrease in our net income. Interest rate fluctuations resulting in our interest expense exceeding interest income would result in operating losses for us from these investments.


Accordingly, to the extent our investments are not match funded with respect to maturities and interest rates, we are exposed to the risk that we may not be able to finance or refinance our investments on economically favorable terms, or at all, or may have to liquidate assets at a loss.


Interest rate fluctuations and shifts in the yield curve may cause losses.


Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Our primary interest rate exposures relate to our investmentsinterests in MSRs, Excess MSRs, Servicer Advance Investments, RMBS, loans, derivatives and any floating rate debt obligations that we may incur. Changes in interest rates, including changes in expected interest rates or “yield curves,” affect our business in a number of ways. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on our interest-earning assets and the interest expense incurred in connection with our interest-bearing liabilities and hedges. Changes in the level of interest rates also can affect, among other things, our ability to acquire real estate relatedand other securities and loans at attractive prices, the value of our real estate relatedand other securities, loans and derivatives and our ability to realize gains from the sale of such assets. We may wish to use hedging transactions to protect certain positions from interest rate fluctuations, but we
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may not be able to do so as a result of market conditions, REIT rules or other reasons. In such event, interest rate fluctuations could adversely affect our financial condition, cash flows and results of operations.


Recently,Since March 2020, the Federal Reserve has increased the benchmarkmaintained interest rate and indicated that there may be further increasesrates close to zero in the future.response to COVID-19 pandemic concerns. In the event of a significant rising interest rate environment and/or economic downturn, however, loan and collateral defaults may increase and result in credit losses that would adversely affect our liquidity and operating results.


Our ability to execute our business strategy, particularly the growth of our investment portfolio, depends to a significant degree on our ability to obtain additional capital. Our financing strategy for our real estate related securities and loans is dependent on our ability to place the debt we use to finance our investments at rates that provide a positive net spread. If spreads for such liabilities widen or if demand for such liabilities ceases to exist, then our ability to execute future financings will be severely restricted.


Interest rate changes may also impact our net book value as most of our real estate related securitiesinvestments are marked to market each quarter. Debt obligations are not marked to market. Generally, as interest rates increase, the value of our fixed rate securities decreases, which will decrease the book value of our equity.


Furthermore, shifts in the U.S. Treasury yield curve reflecting an increase in interest rates would also affect the yield required on our real estate related securitiesinvestments and therefore their value. For example, increasing interest rates would reduce the value of the fixed rate assets we hold at the time because the higher yields required by increased interest rates result in lower market prices on existing fixed rate assets in order to adjust the yield upward to meet the market, and vice versa. This would have similar effects on our real estate relatedand other securities and loan portfolio and our financial position and operations to a change in interest rates generally.


Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which LIBOR is determined may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.

LIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or have other consequences which cannot be predicted. In particular, regulators and law enforcement agencies in the U.K. and elsewhere conducted criminal and civil investigations into whether the banks that contributed information to the British Bankers’ Association (“BBA”) in connection with the daily calculation of LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR. LIBOR is calculated by reference to a market for interbank lending that continues to shrink, as it is based on increasingly fewer actual transactions. This increases the subjectivity of the LIBOR calculation process and increases the risk of manipulation. Actions by the regulators or law enforcement agencies, as well as ICE Benchmark Administration (the current administrator of LIBOR), may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. For example, on July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. In addition, on March 5, 2021, the ICE Benchmark Administration confirmed its intention to cease publication of (i) one week and two month USD LIBOR settings after December 31, 2021 and (ii) the remaining USD LIBOR settings after June 30, 2023.

It is likely that, over time, U.S. Dollar LIBOR will be replaced by the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. However, the manner and timing of this shift is currently unknown. SOFR is an overnight rate instead of a term rate, making SOFR an inexact replacement for LIBOR. There is currently no established process to create robust, forward-looking, SOFR term rates. Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR. It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time, and it is possible that not all of our assets and liabilities will transition to the same alternative reference rate, in each case increasing the difficulty of hedging. Switching existing financial instruments and hedging transactions from LIBOR to SOFR requires calculations of a spread. Industry organizations are attempting to structure the spread calculation in a manner that minimizes the possibility of value transfer between counterparties, borrowers, and lenders by virtue of the transition, but there is no assurance that the calculated spread will be fair and accurate or that all asset types and all types of securitization vehicles will use the same spread. We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management. The process of transition involves operational risks. It is also possible that no transition will occur for many financial instruments, meaning that those instruments would continue to be subject to the weaknesses of the LIBOR calculation process. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the
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market for or value of any securities on which the interest or dividend is determined by reference to LIBOR, loans, derivatives and other financial obligations or on our overall financial condition or results of operations. More generally, any of the above changes or any other consequential changes to LIBOR or any other “benchmark” as a result of international, national or other proposals for reform or other initiatives or investigations, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on the value of and return on any securities based on or linked to a “benchmark.”

Any hedging transactions that we enter into may limit our gains or result in losses.


We may use, when feasible and appropriate, derivatives to hedge a portion of our interest rate exposure, and this approach has certain risks, including the risk that losses on a hedge position will reduce the cash available for distribution to stockholders and that such losses may exceed the amount invested in such instruments. We have adopted a general policy with respect to the use of derivatives, which generally allows us to use derivatives where appropriate, but does not set forth specific policies and procedures or require that we hedge any specific amount of risk. From time to time, we may use derivative instruments, including forwards, futures, swaps and options, in our risk management strategy to limit the effects of changes in interest rates on our operations. A hedge may not be effective in eliminating all of the risks inherent in any particular position. Our profitability may be adversely affected during any period as a result of the use of derivatives.


There are limits to the ability of any hedging strategy to protect us completely against interest rate risks. When rates change, we expect the gain or loss on derivatives to be offset by a related but inverse change in the value of any items that we hedge. We cannot assure you, however, that our use of derivatives will offset the risks related to changes in interest rates. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our


hedging transactions will not result in losses. In addition, our hedging strategy may limit our flexibility by causing us to refrain from taking certain actions that would be potentially profitable but would cause adverse consequences under the terms of our hedging arrangements. The REIT provisions of the Internal Revenue Code limit our ability to hedge. In managing our hedge instruments, we consider the effect of the expected hedging income on the REIT qualification tests that limit the amount of gross income that a REIT may receive from hedging. We need to carefully monitor, and may have to limit, our hedging strategy to assure that we do not realize hedging income, or hold hedges having a value, in excess of the amounts that would cause us to fail the REIT gross income and asset tests. See “—Risks Related to Our Taxation as a REIT—Complying with the REIT requirements may limit our ability to hedge effectively.”


Accounting for derivatives under GAAP is extremely complicated. Any failure by us to account for our derivatives properly in accordance with GAAP in our financial statements could adversely affect us. In addition, under applicable accounting standards, we may be required to treat some of our investments as derivatives, which could adversely affect our results of operations.


Cybersecurity incidents and technology disruptions or failures could damage our business operations and reputation, increase our costs and subject us to potential liability.

As our reliance on rapidly changing technology has increased, so have the risks that threaten the confidentiality, integrity or availability of our information systems, both internal and those provided to us by third-party service providers (including, but not limited to, our Servicing Partners). Cybersecurity incidents may involve gaining authorized or unauthorized access to our information systems for purposes of theft of certain personally identifiable information of consumers, misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. Disruptions and failures of our systems or those of our third-party vendors could result from these incidents or be caused by fire, power outages, natural disasters and other similar events and may interrupt or delay our ability to provide services to our customers, expose us to remedial costs and reputational damage, and otherwise adversely affect our operations. During the COVID-19 pandemic, a portion of our staff have worked remotely, which has caused us to rely heavily on virtual communication and may increase our exposure to cybersecurity risks.

Despite our efforts to ensure the integrity of our systems, there can be no assurance that any such cyber incidents will not occur or, if they do occur, that they will be adequately addressed. We also may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the methods and sources of breaches change frequently or may not be immediately detected.

In addition, we are subject to various privacy and data protection laws and regulations, and any changes to laws or regulations, including new restrictions or requirements applicable to our business, could impose additional costs and liability on us and could limit our use and disclosure of such information. For example, the New York State Department of Financial Services requires certain financial services companies, such as NRM and Newrez, to establish a detailed cybersecurity program and
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comply with other requirements, and the CCPA creates new compliance regulations on businesses that collect information from California residents.

Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, additional regulatory scrutiny, significant litigation exposure and harm to our reputation, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We depend on counterparties and vendors to provide certain services, which subjects us to various risks.
We have a number of counterparties and vendors, who provide us with financial, technology and other services that support our businesses. If our current counterparties and vendors were to stop providing services to us on acceptable terms, we may be unable to procure alternative services from other counterparties or vendors in a timely and efficient manner and on similarly acceptable terms, or at all. With respect to vendors engaged to perform certain servicing activities, we are required to assess their compliance with various regulations and establish procedures to provide reasonable assurance that the vendor’s activities comply in all material respects with such regulations. In the event that a vendor’s activities are not in compliance, it could negatively impact our relationships with our regulators, as well as our business and operations. Accordingly, we may incur significant costs to resolve any such disruptions in service which could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We are subject to risks related to securitization of any loans originated and/or serviced by our subsidiaries.

The securitization of any loans that we originate and/or service subject us to various risks that may increase our compliance costs and adversely impact our financial results, including:
•compliance with the terms of the agreements governing the securitized pools of loans, including any indemnification and repurchase provisions;
•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
•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.

We have engaged and may in the future engage in a number of acquisitions and we may be unable to successfully integrate the acquired assets and assumed liabilities in connection with such acquisitions.

As part of our business strategy, we regularly evaluate acquisitions of what we believe are complementary assets, including, but not limited to, our acquisition of Caliber Home Loans Inc. and agreement to acquire Genesis Capital LLC. Identifying and achieving the anticipated benefits of such acquisitions is subject to a number of uncertainties, including, without limitation, whether we are able to acquire the assets, within our parameters, integrate the acquired assets and manage the assumed liabilities efficiently. It is possible that the integration process could take longer than anticipated and could result in additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices and policies, any of which could adversely affect our ability to achieve the anticipated benefits of such acquisitions. There may be increased risk due to integrating the assets into our financial reporting and internal control systems. Difficulties in adding the assets into our business could also result in the loss of contract counterparties or other persons with whom we conduct business and potential disputes or litigation with contract counterparties or other persons with whom we or such counterparties conduct business. We could also be adversely affected by any issues attributable to the related seller’s operations that arise or are based on events or actions that occurred prior to the closing of such acquisitions. Completion of the integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated benefits will be realized in their entirety or at all or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect our future business, financial condition, operating results and cash flows. Due to the costs of engaging in a number of acquisitions, we may also have difficulty completing more acquisitions in the future.

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Maintenance of our 1940 Act exclusion imposes limits on our operations.


We intend to continue to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act. We believe we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act because we will not engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities. However, under Section 3(a)(1)(C) of the 1940 Act, because we are a holding company that will conduct its businesses primarily through wholly owned and majority owned subsidiaries, the securities issued by our subsidiaries that are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a combined value in excess of 40% of the value of our total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis.basis, unless another exclusion from the definition of “investment company” is available to us. For purposes of the foregoing, we currently treat our interest in our SLS Servicer Advance Investment and our subsidiaries that hold consumer loans as investment securities because these subsidiaries presently rely on the exclusion provided by Section 3(c)(7) of the 1940 Act. The 40% test under Section 3(a)(1)(C) of the 1940 Act limits the types of businesses in which we may engage through our subsidiaries. In addition, the assets we and our subsidiaries may originate or acquire are limited by the provisions of the 1940 Act and the rules and regulations promulgated under the 1940 Act, which may adversely affect our business.


If the value of securities issued by our subsidiaries that are excluded from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we own, exceeds the 40% test under Section 3(a)(1)(C) of the 1940 Act (e.g., the value of our interests in the taxable REIT subsidiaries that hold Servicer Advance Investments and are not excluded from the definition of “investment company” by Section 3(c)(5)(A), (B) or (C) of the 1940 Act increases significantly in proportion to the value of our other assets), or if one or more of such subsidiaries fail to maintain an exclusion or exception from the 1940 Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company under the 1940 Act, either of which could have an adverse effect on us and the market price of our securities. As discussed above, for purposes of the foregoing, we generally treat our interests in our SLS Servicer Advance Investment and our subsidiaries that hold consumer loans as investment securities because these subsidiaries presently rely on the exclusion provided by Section 3(c)(7) of the 1940 Act. If we or any of our subsidiaries were required to register as an investment company under the 1940 Act, the registered entity would become subject to substantial regulation with respect to capital structure (including the ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration, compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.


Failure to maintain an exclusion would require us to significantly restructure our investment strategy. For example, because affiliate transactions are generally prohibited under the 1940 Act, we would not be able to enter into transactions with any of our affiliates if we are required to register as an investment company, and we might be required to terminate our Management Agreement and any other agreements with affiliates, which could have a material adverse effect on our ability to operate our business and pay distributions. If we were required to register us as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.


For purposes of the foregoing, we treat our interests in certain of our wholly owned and majority owned subsidiaries, which constitute more than 60% of the value of our adjusted total assets on an unconsolidated basis, as non-investment securities because such subsidiaries qualify for exclusion from the definition of an investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act. The Section 3(c)(5)(C) exclusion is available for entities “primarily engaged” in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” The Section 3(c)(5)(C) exclusion generally requires that at least 55% of these subsidiaries’ assets must comprise qualifying real estate assets and at least 80% of each of their


portfolios must comprise qualifying real estate assets and real estate-related assets under the 1940 Act. We expect each of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC staff or on our analyses of such guidance to determine which assets are qualifying real estate assets and real estate-related assets. However, the SEC’s guidance was issued in accordance with factual situations that may be substantially different from the factual situations each of our subsidiaries may face, and much of the guidance was issued more than 20 years ago. No assurance can be given that the SEC staff will concur with the classification of each of our subsidiaries’ assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify some of our subsidiaries’ assets for purposes of qualifying for an exclusion from regulation under the 1940 Act. For example, the SEC and its staff have not published guidance with respect to the treatment of whole pool Non-Agency RMBS for purposes of the Section 3(c)(5)(C) exclusion. Accordingly, based on our own judgment and analysis of the guidance from the SEC and its staff identifying Agency whole pool certificates as qualifying
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real estate assets under Section 3(c)(5)(C), we treat whole pool Non-Agency RMBS issued with respect to an underlying pool of mortgage loans in which our subsidiary relying on Section 3(c)(5)(C) holds all of the certificates issued by the pool as qualifying real estate assets. Based on our own judgment and analysis of the guidance from the SEC and its staff with respect to analogous assets, we treat Excess MSRs for which we do not own the related servicing rights as real estate-related assets for purposes of satisfying the 80% test under the Section 3(c)(5)(C) exclusion. If we are required to re-classify any of our subsidiaries’ assets, including those subsidiaries holding whole pool Non-Agency RMBS and/or Excess MSRs, such subsidiaries may no longer be in compliance with the exclusion from the definition of an “investment company” provided by Section 3(c)(5)(C) of the 1940 Act, and in turn, we may not satisfy the requirements to avoid falling within the definition of an “investment company” provided by Section 3(a)(1)(C). To the extent that the SEC staff publishes new or different guidance or disagrees with our analysis with respect to any assets of our subsidiaries we have determined to be qualifying real estate assets or real estate-related assets, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in a subsidiary holding assets we might wish to sell or selling assets we might wish to hold.


In August 2011, the SEC issued a concept release soliciting public comments on a wide range of issues relating to companies engaged in the business of acquiring mortgages and mortgage-related instruments and that rely on Section 3(c)(5)(C) of the 1940 Act. Therefore, there can be no assurance that the laws and regulations governing the 1940 Act status of REITs, or guidance from the SEC or its staff regarding the Section 3(c)(5)(C) exclusion, will not change in a manner that adversely affects our operations. If we or our subsidiaries fail to maintain an exclusion or exception from the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions. In addition, if we or any of our subsidiaries were required to register as an investment company under the 1940 Act, the registered entity would become subject to substantial regulation with respect to capital structure (including the ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration, compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.


Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or our exclusion from the 1940 Act.


If the market value or income potential of qualifying assets for purposes of our qualification as a REIT or our exclusion from registration as an investment company under the 1940 Act declines as a result of increased interest rates, changes in prepayment rates or other factors, or the market value or income from non-qualifying assets increases, we may need to increase our investments in qualifying assets and/or liquidate our non-qualifying assets to maintain our REIT qualification or our exclusion from registration under the 1940 Act. If the change in market values or income occurs quickly, this may be especially difficult to accomplish. This difficulty may be exacerbated by the illiquid nature of any non-qualifying assets we may own. We may have to make investment decisions that we otherwise would not make absent the intent to maintain our qualification as a REIT and exclusion from registration under the 1940 Act.


We are subject to significant competition, and we may not compete successfully.


We are subject to significant competition in seeking investments. We compete with other companies, including other REITs, insurance companies and other investors, including funds and companies affiliated with our Manager. Some of our competitors have greater resources than we possess or have greater access to capital or various types of financing structures than are available to us, and we may not be able to compete successfully for investments or provide attractive investment returns relative to our competitors. These competitors may be willing to accept lower returns on their investments and, as a result, our profit margins could be adversely affected. Furthermore, competition for investments that are suitable for us, including, but not limited to, investmentsinterests in MSRs, may lead to decreased availability, higher market prices and decreased returns available from such investments, which may further limit our ability to generate our desired returns. We cannot assure you that other companies will


not be formed that compete with us for investments or otherwise pursue investment strategies similar to ours or that we will be able to compete successfully against any such companies.


Furthermore,Our business could suffer if we currently dofail to attract and retain highly skilled personnel.

Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of the Company, in particular skilled managers, loan officers, underwriters, loan servicers, debt default specialists and other personnel specialized in finance, risk and compliance. Trained and experienced personnel are in high demand and may be
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in short supply in some areas. We may not havebe able to attract, develop and maintain an adequate skilled workforce necessary to operate our businesses and labor expenses may increase as a mortgage servicing platform. Therefore,result of a shortage in the supply of qualified personnel. If we are unable to attract and retain such personnel, we may not be an attractive buyer for those sellersable to take advantage of MSRsacquisitions and other growth opportunities that prefermay be presented to sell MSRsus and their mortgage servicing platform inthis could have a single transaction. Sincematerial adverse effect on our business, model does not currently include acquiringfinancial condition, liquidity and running servicing platforms, to engage in a bid for such a business we would need to find a servicer to acquire and run the platform or we would need to incur additional costs to shut down the acquired servicing platform. The need to work with a servicer in these situations increases the complexityresults of such potential acquisitions, and Nationstar, Ocwen, Ditech and our other servicers may be unwilling or unable to act as servicer or subservicer on any acquisitions of MSRs, Excess MSRs or Servicer Advance Investments we want to execute. The complexity of these transactions and the additional costs incurred by us if we were to execute future acquisitions of this type could adversely affect our future operating results.operations.


The valuations of our assets are subject to uncertainty because most of our assets are not traded in an active market.


There is not anticipated to be an active market for most of the assets in which we will invest. In the absence of market comparisons, we will use other pricing methodologies, including, for example, models based on assumptions regarding expected trends, historical trends following market conditions believed to be comparable to the then current market conditions and other factors believed at the time to be likely to influence the potential resale price of, or the potential cash flows derived from, an investment. Such methodologies may not prove to be accurate and any inability to accurately price assets may result in adverse consequences for us. A valuation is only an estimate of value and is not a precise measure of realizable value. Ultimate realization of the market value of a private asset depends to a great extent on economic and other conditions beyond our control. Further, valuations do not necessarily represent the price at which a private investment would sell since market prices of private investments can only be determined by negotiation between a willing buyer and seller. If we were to liquidate a particular private investment, the realized value may be more than or less than the valuation of such asset as carried on our books.


Changes in accounting rules could occur at any time and could impact us in significantly negative ways that we are unable to predict or protect against.


As has been widely publicized, theThe SEC, the Financial Accounting Standards Board (the “FASB”) and other regulatory bodies that establish the accounting rules applicable to us have recently proposed or enacted a wide array of changes to accounting rules. Moreover,may, in the future, these regulators may propose additional changes that we do not currently anticipate. Changes to accounting rules that apply to us could significantly impact our business or our reported financial performance in negative ways that we cannot predict or protect against. We cannot predict whether any changes to current accounting rules will occur or what impact any codified changes will have on our business, results of operations, liquidity or financial condition.condition, directly or through their impact on our Servicing Partners or counterparties.


A prolonged economic slowdown, a lengthy or severe recession, or declining real estate values could harm our operations.


We believe the risks associated with our business are more severe during periods in which an economic slowdown or recession is accompanied by declining real estate values, as was the case in 2008. The COVID-19 pandemic has had and could continue to have an adverse impact on economic and market conditions and could result in a prolonged period of economic slowdown. Declining real estate values generally reduce the level of new mortgage loan originations, since borrowers often use increases in the value of their existing properties to support the purchase of, or investment in, additional properties. Borrowers may also be less able to pay principal and interest on our loans or the loans underlying our securities, interests in MSRs and servicer advances, if the real estate economy weakens. Further, declining real estate values significantly increase the likelihood that we will incur losses on our securitiesinvestments in the event of default because the value of our collateral may be insufficient to cover our basis. Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect our net interest income from the assets in our portfolio, which would significantly harm our revenues, results of operations, financial condition, liquidity, business prospects and our ability to make distributions to our stockholders.


Compliance with changing regulation of corporate governance and public disclosure has and will continue to result in increased compliance costs and pose challenges for our management team.


ManyCertain aspects of the Dodd-Frank Act areremain subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on us and, more generally, the financial services and mortgage industries. Additionally, we cannot predict whether there will be additional proposed laws or new reforms under the current Administration that would affect us, whether or when such changes may be adopted, how such changes may be interpreted and enforced or how such
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changes may affect us. However, the costs of complying with any additional laws or regulations could have a material effect on our financial condition and results of operations.



Stockholder or other litigation against HLSS and/or us could result in the payment of damages and/or may materially and adversely affect our business, financial condition, results of operations and liquidity.

Transactions, such as the HLSS Acquisition, often give rise to lawsuits by stockholders or other third parties. Stockholders may, among other things, assert claims relating to the parties’ mutual agreement to terminate the Agreement and Plan of Merger (the “HLSS Initial Merger Agreement”). Stockholders may also assert claims relating to the fact that HLSS no longer owns any significant assets other than the cash received from us in the HLSS Acquisition and any cash proceeds it received pursuant to its sale of our common stock. The defense or settlement of any lawsuit or claim regarding the HLSS Acquisition may materially and adversely affect our business, financial condition, results of operations and liquidity. Further, such litigation could be costly and could divert our time and attention from the operation of the business.

On May 22, 2015, a purported stockholder of the Company, Chester County Employees’ Retirement Fund, filed a class action and derivative action in the Delaware Court of Chancery purportedly on behalf of all stockholders and the Company, titled Chester County Employees’ Retirement Fund v. New Residential Investment Corp., et al., C.A. No. 11058-VCMR. On October 30, 2015, plaintiff filed an amended complaint (the “Amended Complaint”). The lawsuit names the Company, our directors, our Manager, Fortress and Fortress Operating Entity I LP as defendants, and alleges breaches of fiduciary duties by the Company, our directors, our Manager, Fortress and Fortress Operating Entity I LP in connection with the HLSS Acquisition. The lawsuit also seeks declaratory judgment, among other things, as to the applicability of Article Twelfth of the Company’s Certificate of Incorporation and as to the validity of the release of claims of the Company’s stockholders related to the termination of the HLSS Initial Merger Agreement. The Amended Complaint seeks declaratory relief, equitable relief and damages. On December 11, 2015, defendants filed a motion to dismiss the Amended Complaint, which was heard by the court on June 14, 2016. On October 7, 2016, the court issued an opinion dismissing without prejudice the breach of fiduciary duty claims and declaratory judgment claims, except for the claim relating to the applicability of Article Twelfth. On October 14, 2016, plaintiff moved to reargue the Court's dismissal opinion, and defendants filed an opposition to the motion for reargument on October 28, 2016. On December 1, 2016, the court denied the motion for reargument. Plaintiff filed a second amended complaint (the “Second Amended Complaint”) on February 27, 2017 containing allegations and seeking relief similar to that in the Amended Complaint. Defendants moved to dismiss the Second Amended Complaint on March 30, 2017. The court held an oral argument on the motion to dismiss on July 7, 2017, which the court granted in the defendants’ favor on October 6, 2017.

We have engaged and may in the future engage in a number of acquisitions (including the HLSS Acquisition, the Ocwen Transaction and the MSR Transactions), and we may be unable to successfully integrate the acquired assets and assumed liabilities in connection with such acquisitions.

As part of our business strategy, we regularly evaluate acquisitions of what we believe are complementary assets. Identifying and achieving the anticipated benefits of such acquisitions is subject to a number of uncertainties, including, without limitation, whether we are able to acquire the assets, within our parameters, integrate the acquired assets and manage the assumed liabilities efficiently. As an example, we depend on Ocwen for significant operational support with respect to HLSS assets and the Ocwen Subject MSRs. It is possible that the integration process could take longer than anticipated and could result in additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices and policies, any of which could adversely affect our ability to achieve the anticipated benefits of such acquisitions. There may be increased risk due to integrating the assets into our financial reporting and internal control systems. Difficulties in adding the assets into our business could also result in the loss of contract counterparties or other persons with whom we conduct business and potential disputes or litigation with contract counterparties or other persons with whom we or such counterparties conduct business. We could also be adversely affected by any issues attributable to the related seller’s operations that arise or are based on events or actions that occurred prior to the closing of such acquisitions. Completion of the integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated benefits will be realized in their entirety or at all or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect our future business, financial condition, operating results and cash flows. Due to the costs of engaging in a number of acquisitions (including the MSR Transactions), we may also have difficulty completing more acquisitions in the future.




There may be difficulties with integrating the loans related tounderlying MSR acquisitions involving servicing transfers into the Citi Transaction into Nationstar’ssuccessor servicer’s servicing platform, which could have a material adverse effect on our results of operations, financial condition and liquidity.


In connection with certain MSR acquisitions, servicing is transferred from the Citi Transaction, Citi’s remaining interim servicing obligations will be transferredseller to Nationstar, subject to GSE and other regulatory approvals.a subservicer appointed by us. The ability to integrate and service the assets acquired in the Citi Transaction and in all similar future transactions will depend in large part on the success of Nationstar’s development andour subservicer’s integration of expanded servicing capabilities with Nationstar’sits current operations. We may fail to realize some or all of the anticipated benefits of the transactionthese transactions if the integration process takes longer, or is more costly, than expected.

Potential difficulties we may encounter during the integration process with the assets acquired in the Citi Transaction or future similarMSR acquisitions involving servicing transfers include, but are not limited to, the following:


•the integration of the portfolio into Nationstar’sour 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 Nationstarour 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.


Our failure to meet the challenges involved in successfully integrating the assets acquired in the Citi Transaction and in all similar future transactionsMSR acquisitions involving servicing transfers with our current business could impair our operations. For example, it is possible that the data Nationstarour applicable subservicer acquires upon assuming the direct servicing obligations for the loans may not transfer from the Citiseller’s platform to its systems properly. This may result in data being lost, key information not being locatable on Nationstar’sour applicable subservicer’s systems, or the complete failure of the transfer. If Nationstar’sour employees are unable to access customer information easily, or if Nationstar is unable to produce originals or copies of documents or accurate information about the loans, collections could be affected significantly, and Nationstarour subservicer may not be able to enforce its right to collect in some cases. Similarly, collections could be affected by any changes to Nationstar’sour applicable subservicer’s collections practices, the restructuring of any key servicing functions, transfer of files and other changes that occur as a result of the transfer of servicing obligations from Citithe seller to Nationstar.our subservicer.

We are responsible for certain of HLSS’s contingent and other corporate liabilities.

Under the HLSS acquisition agreement, we have assumed and are responsible for the payment of HLSS’s contingent and other liabilities, including: (i) liabilities for litigation relating to, arising out of or resulting from certain lawsuits in which HLSS is named as the defendant, (ii) HLSS’s tax liabilities, (iii) HLSS’s corporate liabilities, (iv) generally any actions with respect to the HLSS Acquisition brought by any third party and (v) payments under contracts. We currently cannot estimate the amount we may ultimately be responsible for as a result of assuming substantially all of HLSS’s contingent and other corporate liabilities. The amount for which we are ultimately responsible may be material and have a material adverse effect on our business, financial condition, results of operations and liquidity. In addition, certain claims and lawsuits may require significant costs to defend and resolve and may divert management’s attention away from other aspects of operating and managing our business, each of which could materially and adversely affect our business, financial condition, results of operations and liquidity.
In August 2014, HLSS restated its consolidated financial statements for the quarter ended March 31, 2014, and for the years ended December 31, 2013 and 2012, including the quarterly periods within those years, to correct the valuation and the related effect on amortization of its Notes Receivable-Rights to MSRs that resulted from a material weakness in its internal control over financial reporting.

On March 23, 2015, HLSS received a subpoena from the SEC requesting that it provide information concerning communications between HLSS and certain investment advisors and hedge funds. The SEC also requested documents relating to HLSS’s structure, certain governance documents and any investigations or complaints connected to trading in HLSS’s securities. We are cooperating with the SEC in this matter.

Three putative class action lawsuits have been filed against HLSS and certain of its current and former officers and directors in the United States District Court for the Southern District of New York entitled: (i) Oliveira v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-652 (S.D.N.Y.), filed on January 29, 2015; (ii) Berglan v. Home Loan Servicing Solutions, Ltd., et al., No. 15-CV-947 (S.D.N.Y.), filed on February 9, 2015; and (iii) W. Palm Beach Police Pension Fund v. Home Loan Servicing Solutions,


Ltd., et al., No. 15-CV-1063 (S.D.N.Y.), filed on February 13, 2015. On April 2, 2015, these lawsuits were consolidated into a single action, which is referred to as the “Securities Action.” On April 28, 2015, lead plaintiffs, lead counsel and liaison counsel were appointed in the Securities Action. On November 9, 2015, lead plaintiffs filed an amended class action complaint. On January 27, 2016, the Securities Action was transferred to the United States District Court for the Southern District of Florida and given the Index No. 16-CV-60165 (S.D. Fla.).

The Securities Action names as defendants HLSS, former HLSS Chairman William C. Erbey, HLSS Director, President and Chief Executive Officer John P. Van Vlack, and HLSS Chief Financial Officer James E. Lauter. The Securities Action asserts causes of action under Sections 10(b) and 20(a) of the Exchange Act based on certain public disclosures made by HLSS relating to its relationship with Ocwen and HLSS’s risk management and internal controls. More specifically, the consolidated class action complaint alleges that a series of statements in HLSS’s disclosures were materially false and misleading, including statements about (i) Ocwen’s servicing capabilities; (ii) HLSS’s contingencies and legal proceedings; (iii) its risk management and internal controls; and (iv) certain related party transactions. The consolidated class action complaint also appears to allege that HLSS’s financial statements for the years ended 2012 and 2013, and the first quarter ended March 30, 2014, were false and misleading based on HLSS’s August 18, 2014 restatement. Lead plaintiffs in the Securities Action also allege that HLSS misled investors by failing to disclose, among other things, information regarding governmental investigations of Ocwen’s business practices. Lead plaintiffs seek money damages under the Exchange Act in an amount to be proven at trial and reasonable costs, expenses, and fees. On February 11, 2015, defendants filed motions to dismiss the Securities Action in its entirety. On June 6, 2016, all allegations except those regarding certain related party transactions were dismissed.

On June 15, 2017, the court entered an order preliminarily approving a settlement of the Securities Action for $6 million, certifying a settlement class, approving the form and content of notice of the settlement to class members, and setting a hearing for November 17, 2017 to determine whether the settlement should receive final approval.

Refer to “Risk Factors—Risks Related to Our Business—Stockholder or other litigation against HLSS and/or us could result in the payment of damages and/or may materially and adversely affect our business, financial condition results of operations and liquidity” for a description of the Chester County Employees’ Retirement Fund litigation.

We cannot guarantee that we will not receive further regulatory inquiries or be subject to litigation regarding the subject matter of the subpoenas or matters relating thereto, or that existing inquires, or, should they occur, any future regulatory inquiries or litigation, will not consume internal resources, result in additional legal and consulting costs or negatively impact our stock price.


We could be materially and adversely affected by past events, conditions or actions with respect to HLSS or Ocwen.


HLSS acquired assets and assumed liabilities could be adversely affected as a result of events or conditions that occurred or existed before the closing of the HLSS Acquisition. Adverse changes in the assets or liabilities we have acquired or assumed, respectively, as part of the HLSS Acquisition, could occur or arise as a result of actions by HLSS or Ocwen, legal or regulatory developments, including the emergence or unfavorable resolution of pre-acquisition loss contingencies, deteriorating general business, market, industry or economic conditions, and other factors both within and beyond the control of HLSS or Ocwen. We are subject to a variety of risks as a result of our dependence on mortgage servicers such as Nationstar and Ocwen,Servicing Partners, including, without limitation, the potential loss of all of the value of our Excess MSRs in the event that the servicer of the underlying loans is terminated by the mortgage loan owner or RMBS bondholders. A significant decline in the value of HLSS assets or a significant increase in HLSS liabilities we have acquired could adversely affect our future business, financial condition, cash flows and results of operations. HLSS is subject to a number of other risks and uncertainties, including regulatory investigations and legal proceedings against HLSS, and others with whom HLSS conducted business. Moreover, any insurance proceeds received with respect to such matters may be inadequate to cover the associated losses. For more information regarding recent actions against Ocwen, see “—Ocwen has been and is subject to certain federal and state regulatory matters” above. Adverse developments at Ocwen, including liquidity issues, ratings downgrades, defaults under debt agreements, servicer rating downgrades, failure to comply with the terms of PSAs, termination under PSAs, Ocwen bankruptcy proceedings and additional regulatory issues and settlements, including those described above, could have a material adverse effect on us. See “—We rely heavily on mortgage servicersour Servicing Partners to achieve our investment objective and have no direct ability to influence their performance.”




Our ability to borrow may be adversely affected by the suspension or delay of the rating of the notes issued under the NRART facility or othercertain of our financing facilities by the credit agency providing the ratings.


AllCertain of the notes outstanding under the NRZ Advance Receivables Trust 2015-ON1 (“NRART”) facilityour financing facilities are rated by one rating agency and we may sponsor financing facilities in the future that are rated by credit agencies. The related agency or rating agencies may suspend rating notes backed by servicer advances, MSRs,
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Excess MSRs and our other investments at any time. Rating agency delays may result in our inability to obtain timely ratings on new notes, or amend or modify other financing facilities which could adversely impact the availability of borrowings or the interest rates, advance rates or other financing terms and adversely affect our results of operations and liquidity. Further, if we are unable to secure ratings from other agencies, limited investor demand for unrated notes could result in further adverse changes to our liquidity and profitability.


A downgrade of certain of the notes issued under the NRART facility or otherour financing facilities could cause such notes to become due and payable prior to their expected repayment date/maturity date, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.


Regulatory scrutiny regarding foreclosure processes could lengthen foreclosure timelines, which could increase advances and materially and adversely affect our business, financial condition, results of operations and liquidity.


When a residential mortgage loan is in foreclosure, the servicer is generally required to continue to advance delinquent principal and interest to the securitization trust and to also make advances for delinquent taxes and insurance and foreclosure costs and the upkeep of vacant property in foreclosure to the extent we determineit determines that such amounts are recoverable. These servicer advances are generally recovered when the delinquency is resolved. Foreclosure moratoria or other actions that lengthen the foreclosure process increase the amount of servicer advances, lengthen the time it takes for reimbursement of such advances and increase the costs incurred during the foreclosure process. In addition, servicer advance financing facilities generally contain provisions that limit the eligibility of servicer advances to be financed based on the length of time that servicer advances are outstanding, and, as a result, an increase in foreclosure timelines could further increase the amount of servicer advances that need to be funded from the related servicer’s own capital. Such increases in foreclosure timelines could increase the need for capital to fund servicer advances, which would increase our interest expense, delay the collection of interest income or servicing revenue until the foreclosure has been resolved and, therefore, reduce the cash that we have available to pay our operating expenses or to pay dividends. For more information, regarding recent actions against Ocwen, see “—Ocwen has been and is subject to certain federal and state regulatory matters” and “—We could be materially and adversely affected by past events, conditions or actions that might occur atwith respect to HLSS or Ocwen” above.
 
Certain of our servicersServicing Partners have triggered termination events or events of default under some PSAs underlying the MSRs with respect to which we are entitled to the basic fee component or Excess MSRs, and the parties toMSRs.

In certain of these circumstances, the related securitization transactions could enforce their rights against such servicer as a result.

If a servicer termination event or event of default occurs under a PSA, the servicerServicing Partner may be terminated without any right to compensation for its loss, other than the right to be reimbursed for any outstanding servicer advances as the related loans are brought current, modified, liquidated or charged off. So long as we are in compliance with our obligations under our servicing agreements and purchase agreements, if we or one of our servicersServicing Partners is terminated as servicer, we may have the right to receive an indemnification payment from such servicer or anythe applicable subservicer,Servicing Partner, even if such termination related to servicer termination events or events of default existing at the time of any transaction with such servicer.Servicing Partner. If one of our servicersServicing Partners is terminated as servicer under a PSA, we will lose any investment related to such servicer’sServicing Partner’s MSRs. If we or such servicerServicing Partner is terminated as servicer with respect to a PSA and we are unable to enforce our contractual rights against such servicer or related subservicer, as applicable,Servicing Partner, or if such servicer or related subservicer, as applicableServicing Partner is unable to make any resulting indemnification payments to us, if any such payment is due and payable, it may have a material adverse effect on our financial condition, results of operations, ability to make distributions, liquidity and financing arrangements, including our servicer advance financing facilities, and may make it more difficult for us to acquire additional MSR investmentsinterests in MSRs in the future.


During FebruaryRepresentations and March 2015, Ocwen received two notices of servicer termination affecting four separate PSAs related to MSRs related to the transactions contemplated by the Ocwen Purchase Agreement (Note 1 to our Condensed Consolidated Financial Statements). Ocwen could be subject to further terminations as a result of its failure to maintain required minimum servicer ratings, which could have an adverse effect on our business, financing activities, financial condition and results of operations.

On January 23, 2015, Gibbs & Bruns LLP, on behalf of its clients, issued a press release regarding the notices of nonperformance provided to various trustees in relation to Ocwen’s servicing practices under 119 residential mortgage-backed securities trusts. Of these transactions, 90 relate to agreements for MSRs related to the transactions contemplated by the Ocwen Purchase Agreement,


which are also Ocwen Subject MSRs under the Ocwen Transaction. It is possible that Ocwen could be terminated for other servicing agreements related to such MSRs.

On January 29, 2015, Moody’s downgraded Ocwen’s SQ assessment from SQ3+ to SQ3- as a primary servicer of subprime residential loans and as a special servicer of residential mortgage loans. During February 2015, Fitch downgraded Ocwen’s residential primary servicer rating for subprime products from “RPS3” to “RPS4” and, in February 2016, upgraded such rating to “RPS3-.” During February 2015, Morningstar also downgraded Ocwen’s residential primary servicer rating from “MOR RS2” to “MOR RS3.” Throughout 2015, S&P downgraded Ocwen’s various servicer ratings from “Average” to “Below Average,” then upgraded such ratings to “Average” on August 9, 2016.

As a result of recent regulatory actions, certain rating agencies have announced that they have placed Ocwen’s servicer ratings on review for possible downgrade. For example, in April 2017, Moody’s placed Ocwen’s servicer ratings on “Review for Downgrade,” Moody’s changed its forecast from “Positive” to “On Alert” and Fitch changed its outlook from “Stable” to “Negative.” Any downgrades in Ocwen’s servicer ratings could increase our financing costs or operating expenses, reduce our revenues or otherwise materially adversely affect our business, financial condition, results of operations and liquidity. Additionally, our response to any such downgrade actions could include a termination of applicable agreements, pursuant to their terms. Further, certain of the servicing agreements underlying our MSRs, Excess MSRs and servicer advances require that Ocwen maintain specified servicer ratings. The failure to satisfy such specified servicing ratings results in a termination of Ocwen, which would have a negative effect on such MSRs, Excess MSRs and servicer advances.

The performance of loans that we acquired in the HLSS Acquisition may be adversely affected by the performance of parties who service or subservice these residential mortgage loans.

HLSS and its subsidiaries acquiredwarranties made by us in the HLSS Acquisition contracted with third parties for the servicing of the residential mortgage loans in its early buy-out (“EBO”) portfolio. The performance of this portfolioour collateralized borrowings and our ability to finance this portfolio areloan sale agreements may subject to risks associated with inadequate or untimely servicing. If our servicers or subservicers commit a material breach of their obligations as a servicer, we may be subject to damages if the breach is not cured within a specified period of time following notice. In addition, we may be required to indemnify an investor or our lenders against losses from any failure of our servicer or subservicer to perform the servicing obligations properly. Poor performance by a servicer or subservicer may result in greater than expected delinquencies and foreclosures and losses on our mortgage loans. A substantial increase in our delinquency or foreclosure rate or the inability to process claims in accordance with Ginnie Mae or FHA guidelines could adversely affect our ability to access the capital and secondary markets for our financing needs.

Servicing issues in the portfolio of loans that was acquired in the HLSS Acquisition could adversely impact our claims against FHA insurance and result in our reliance on servicer indemnifications which could increase losses.

We rely on our servicers (including Ocwen) to service our Ginnie Mae EBO loans we acquired in the HLSS Transaction in a manner that supports our ability to make claims to the FHA for shortfalls on these loans. If servicing issues result in the curtailment of FHA insurance claims, we will only have recourse against the servicer for any shortfall. If the servicer is unable to make indemnification payments owed to us under this circumstance, we could incur losses.

Our borrowings collateralized by loans require that we make certain representations and warranties that, if determined to be inaccurate, could require us to repurchase loans or cover losses.liability.


Our financing facilities require us to make certain representations and warranties regarding the loansassets that collateralize the borrowings. Although we perform due diligence on the loansassets that we acquire, certain representations and warranties that we make in respect of such loansassets may ultimately be determined to be inaccurate. In addition, our loan sale agreements require us to make representations and warranties to the purchaser regarding the loans that were sold. Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxes or other liens; the loans’ compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien.

In the event of a breach of a representation or warranty, we may be required to repurchase affected loans, make indemnification payments to certain indemnified parties or address any claims associated with such breach. Further, we may have limited or no recourse against the seller from whom we purchased the loans. Such recourse may be limited due to a variety of factors, including the absence of a representation or warranty from the seller corresponding to the representation provided by us or the contractual expiration thereof.

Representations and warranties made by us in our loan sale agreements may subject us to liability.

We may be liable to purchasers under the related sale agreement for any breaches A breach of representations and warranties made by HLSS at the time the applicable loans are sold. Such representations and warranties may include, but are not limited to, issues such as the validity of the lien; the absence of delinquent taxesa representation or other liens; the loans compliance with all local, state and federal laws and the delivery of all documents required to perfect title to the lien. If the purchaser is successful in asserting its claim for recourse, thiswarranty could adversely affect the availability of financing under loan financing facilities or otherwise adversely impact our results


of operations and liquidity. From time to time we sell residential mortgage loans pursuant to loan sale agreements. The risks describe in this paragraph relate to any such sale as well.

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Our ability to exercise our cleanup call rights may be limited or delayed if a third party contests our ability to exercise our cleanup call rights, if the related securitization trustee refuses to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.


Certain servicing contracts permit more than one party to exercise a cleanup call-meaningcall—meaning the right of a party to collapse a securitization trust by purchasing all of the remaining loans held by the securitization trust pursuant to the terms set forth in the applicable servicing agreement. While the servicers from which we acquired our cleanup call rights (or other servicers from which ourthese servicers acquired MSRs) may be named as the party entitled to exercise such rights, certain third parties may also be permitted to exercise such rights. If any such third party exercises a cleanup call, we could lose our ability to exercise our cleanup call right and, as a result, lose the ability to generate positive returns with respect to the related securitization transaction. In addition, another party could impair our ability to exercise our cleanup call rights by contesting our rights (for example, by claiming that they hold the exclusive cleanup call right with respect to the applicable securitization trust). Moreover, because the ability to exercise a cleanup call right is governed by the terms of the applicable servicing agreement, any ambiguous or conflicting language regarding the exercise of such rights in the agreement may make it more difficult and costly to exercise a cleanup call right. Furthermore, certain servicing contracts provide cleanup call rights to a servicer currently subject to bankruptcy proceedings from which our servicers have acquired MSRs. While, notwithstanding the related bankruptcy proceedings, it is possible that we will be able to exercise the related cleanup calls within our desired time frame, our ability to exercise such rights may be significantly delayed or impaired by the applicable securitization trustee or bankruptcy estate or any additional steps required because of the bankruptcy process. Finally, many of our call rights are not currently exercisable and may not become exercisable for a period of years. As a result, our ability to realize the benefits from these rights will depend on a number of factors at the time they become exercisable many of which are outside our control, including interest rates, conditions in the capital markets and conditions in the residential mortgage market.


The exercise of cleanup calls could negatively impact our interests in MSRs.

The exercise of cleanup call rights results in the termination of the MSRs on the loans held within the related securitization trusts. To the extent we own interests in MSRs with respect to loans held within securitization trusts where cleanup call rights are exercised, whether they are exercised by us or a third party, the value of our interests in those MSRs will likely be reduced to zero and we could incur losses and reduced cash flows from any such interests.

New Residential’s subsidiary New Residential Mortgage LLC issubsidiaries, NRM, Newrez and Caliber are or may become subject to significant state and federal regulations.


A subsidiarySubsidiaries of New Residential, New Residential Mortgage LLC (“NRM”), hasNRM, Newrez and Caliber, have obtained or is currently in the process of obtaining applicable qualifications, licenses and approvals to own Non-Agency and certain Agency MSRs in the United States and certain other jurisdictions. As a result of NRM’sNRM, Newrez and Caliber’s current and expected approvals, NRM, isNewrez and Caliber are subject to extensive and comprehensive regulation under federal, state and local laws in the United States. These laws and regulations do, and may in the future, significantly affect the way that NRM, doesNewrez and Caliber do business, and may subject NRM, Newrez, Caliber and New Residential to additional costs and regulatory obligations, which could impact our financial results.


NRM’sNRM, Newrez and Caliber’s business may become subject to increasing regulatory oversight and scrutiny in the future, as it continues seeking and obtaining additional approvals to hold MSRs, which may lead to regulatory investigations or enforcement actions, including both formal and informal inquiries, from various state and federal agencies as part of those agencies’ oversightsupervision of the mortgage servicing business.and origination business activities. An adverse result in governmental investigations or examinations or private lawsuits, including purported class action lawsuits, may adversely affect NRM’sNRM, Newrez, Caliber and our financial results or result in serious reputational harm. In addition, a number of participants in the mortgage servicing industry have been the subject of purported class action lawsuits and regulatory actions by state or federal regulators, and other industry participants have been the subject of actions by state Attorneys General.


Failure of New Residential’s subsidiary,subsidiaries, NRM, Newrez and Caliber, to obtain or maintain certain licenses and approvals required for NRM, Newrez and Caliber to purchase and own MSRs could prevent us from purchasing or owning MSRs, which could limit our potential business activities.


State and federal laws require a business to hold certain state licenses prior to acquiring MSRs. NRM, isNewrez and Caliber are currently licensed or otherwise eligible to hold MSRs in each applicable state. As a licenseelicensees in such states, NRM, Newrez or Caliber may become subject to administrative actions in those states for failing to satisfy ongoing license requirements or for other state law violations, the consequences of which could include fines or suspensions or revocations of NRM’sNRM, Newrez or Caliber licenses by applicable state regulatory authorities, which could in turn result in NRM, Newrez or Caliber becoming ineligible to hold MSRs in the related jurisdictions. We could be delayed or prohibited from conducting certain business activities if we do not maintain necessary licenses in certain jurisdictions. We cannot assure you that we will be able to maintain all of the required state licenses.


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Additionally, NRM, hasNewrez and Caliber have received approval from FHA to hold MSRs associated with FHA-insured mortgage loans, from Fannie Mae to hold MSRs associated with loans owned by Fannie Mae, and from Freddie Mac to hold MSRs associated with loans owned by Freddie Mac. NRM may seek approval from Ginnie Mae to become an approved Ginnie Mae Issuer, which would make NRM


eligible to hold MSRs associated with Ginnie Mae securities. As an approved Fannie Mae Servicer,Servicers, Freddie Mac ServicerServicers and FHA Lender,Lenders, NRM, isNewrez and Caliber are required to conduct aspects of itstheir respective operations in accordance with applicable policies and guidelines published by FHA, Fannie Mae and Freddie Mac in order to maintain those approvals. Should NRM, Newrez or Caliber fail to maintain FHA, Fannie Mae or Freddie Mac approval, NRM, Newrez or fail to obtain approval from Ginnie Mae, NRMCaliber may be unable to purchase certain types ofor hold MSRs associated with FHA-insured, Fannie Mae and/or Freddie Mac loans, which could limit our potential business activities.


In addition, Newrez and Caliber are approved issuers of mortgage-backed securities guaranteed by Ginnie Mae and service the mortgage loans related to such securities (“Ginnie Mae Issuer”). As approved Ginnie Mae Issuers, Newrez and Caliber are required to conduct aspects of their operations in accordance with applicable policies and guidelines published by Ginnie Mae in order to maintain their approvals. Should Newrez or Caliber fail to maintain Ginnie Mae approval, we may be unable to purchase or hold MSRs associated with Ginnie Mae loans, which could limit our potential business activities.

NRM, isNewrez and Caliber are currently subject to various, and may become subject to additional, information reporting and other regulatory requirements, and there is no assurance that we will be able to satisfy those requirements or other ongoing requirements applicable to mortgage loan servicers under applicable federal and state laws and federal laws.regulations. Any failure by NRM, Newrez or Caliber to comply with such state or federal regulatory requirements may expose us to administrative or enforcement actions, license or approval suspensions or revocations or other penalties that may restrict our business and investment options, any of which could restrict our business and investment options, adversely impact our business and financial results and damage our reputation.


We may become subject to fines or other penalties based on the conduct of mortgage loan originators and brokers that originate residential mortgage loans related to MSRs that we acquire, and the third-party servicers we may engage to subservice the loans underlying MSRs we acquire.


We have acquired MSRs and may in the future acquire additional MSRs from third-party mortgage loan originators, brokers or other sellers, and we therefore are or will become dependent on such third parties for the related mortgage loans’ compliance with applicable law, and on third-party mortgage servicers, including our Servicing Partners, to perform the day-to-day servicing on the mortgage loans underlying any such MSRs. Mortgage loan originators and brokers are subject to strict and evolving consumer protection laws and other legal obligations with respect to the origination of residential mortgage loans. These laws and regulations include the residential mortgage servicing standards, “ability-to-repay” and “qualified mortgage” regulations promulgated by the CFPB, which became effective in 2014. In addition, there are various other federal, state, and local laws and regulations that are intended to discourage predatory lending practices by residential mortgage loan originators. These laws may be highly subjective and open to interpretation and, as a result, a regulator or court may determine that that there has been a violation where an originator or servicer of mortgage loans reasonably believed that the law or requirement had been satisfied. Although we will not originate or directly service any mortgage loans, failureFailure or alleged failure by originators or servicers to comply with these laws and regulations could subject us as an investor in MSRs, to state or CFPB administrative proceedings, which could result in monetary penalties, license suspensions or revocations, or restrictions to our business, all of which could adversely impact our business and financial results and damage our reputation.


The final servicing rules promulgated by the CFPB to implement certain sections of the Dodd-Frank Act include provisions relating to, among other things, periodic billing statements and disclosures, responding to borrower inquiries and complaints, force-placed insurance, and adjustable rate mortgage interest rate adjustment notices. Further, the mortgage servicing rules require servicers to, among other things, make good faith early intervention efforts to notify delinquent borrowers of loss mitigation options, to implement specified loss mitigation procedures, and if feasible, exhaust all loss mitigation options before proceeding to foreclosure. Proposed updates to further refine these rules have been published and will likely lead to further changes in requirements applicable to servicing mortgage loans.


We do not engage in any day-to-day servicing operations,In addition to Newrez and insteadCaliber, we engage third-party servicers to subservice mortgage loans relating to any MSRs we acquire. It is therefore possible that a third-party servicer’s failure to comply with the new and evolving servicing protocols could adversely affect the value of the MSRs we acquire. Additionally, we may become subject to fines, penalties or civil liability based upon the conduct of any third-party servicer who services mortgage loans related to MSRs that we have acquired or will acquire in the future.


Investments in MSRs may expose us to additional risks.


We hold investments in MSRs. Our investments in MSRs may subject us to certain additional risks, including the following:

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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.
•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.
NRM’s•NRM, Newrez and Caliber’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, Newrez or Caliber’s existing approvals or pending applications by one or more entities or agencies.
•NRM, isNewrez and Caliber 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.


Our business, results of operations, financial condition and reputation could be adversely impacted if we are not able to successfully manage these or other risks related to investing and managing MSR investments.


Risks Related to Our Manager


We are dependent on our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement.


None of our officers or other senior individuals who perform services for us (other than three part-time employees of NRM), is an employee of New Residential. Instead, these individuals are employees of our Manager. Accordingly, we are completely reliant on our Manager, which has significant discretion as to the implementation of our operating policies and strategies, to conduct our business. We are subject to the risk that our Manager will terminate the Management Agreement and that we will not be able to find a suitable replacement for our Manager in a timely manner, at a reasonable cost or at all. Furthermore, we are dependent on the services of certain key employees of our Manager whose compensation is partially or entirely dependent upon the amount of incentive or management compensation earned by our Manager and whose continued service is not guaranteed, and the loss of such services could adversely affect our operations.

On February 14, 2017, Fortress announced that it had entered into the Merger Agreement with SoftBank Parent and an affiliate of SoftBank, and SoftBank Merger Sub, pursuant to which SoftBank Merger Sub will merge with and into Fortress, with Fortress surviving as a wholly owned subsidiary of SoftBank Parent. While Fortress’s senior investment professionals are expected to remain in place, including those individuals who perform services for us, there can be no assurance that the SoftBank merger will not have an impact on us or our relationship with the Manager.


There are conflicts of interest in our relationship with our Manager.


Our Management Agreement with our Manager was not negotiated between unaffiliated parties, and its terms, including fees payable, although approved by the independent directors of New Residential as fair, may not be as favorable to us as if they had been negotiated with an unaffiliated third party.


There are conflicts of interest inherent in our relationship with our Manager insofar as our Manager and its affiliates—including investment funds, private investment funds, or businesses managed by our Manager including Drive Shack, Nationstar and OneMain—invest in real estate relatedand other securities and loans, consumer loans and Excessinterests in MSRs and Servicer Advance Investments and whose investment objectives overlap with our investment objectives. Certain investments appropriate for us may also be appropriate for one or more of these other investment vehicles. Certain members of our board of directors and employees of our Manager who are our officers also serve as officers and/or directors of these other entities. For example, we have some of the same directors as Drive Shack. Although we have the same Manager, we may compete with entities affiliated with our Manager or Fortress including Drive Shack, for certain target assets. From time to time, affiliates of Fortress focus on investments in assets with a similar profile


as our target assets that we may seek to acquire. These affiliates may have meaningful purchasing capacity, which may change over time depending upon a variety of factors, including, but not limited to, available equity capital and debt financing, market conditions and cash on hand. Fortress has two funds primarily focused on investing in Excess MSRs with approximately $0.7 billion in capital commitmentsinvestments in aggregate. We have broad investment guidelines, and we have co-invested and may co-invest with Fortress funds or portfolio companies of private equity funds managed by our Manager (or an affiliate thereof) in a variety of
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investments. We also may invest in securities that are senior or junior to securities owned by funds managed by our Manager. Fortress funds generally have a fee structure similar to ours, but the fees actually paid will vary depending on the size, terms and performance of each fund.


Our Management Agreement with our Manager generally does not limit or restrict our Manager or its affiliates from engaging in any business or managing other pooled investment vehicles that invest in investments that meet our investment objectives. Our Manager intends to engage in additional real estate related management and real estate and other investment opportunities in the future, which may compete with us for investments or result in a change in our current investment strategy. In addition, our certificate of incorporation provides that if Fortress or an affiliate or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our stockholders or our affiliates. In the event that any of our directors and officers who is also a director, officer or employee of Fortress or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of New Residential and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if Fortress or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us.


The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement with our Manager, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, we have engaged and may in the future engage (subject to our investment guidelines) in material transactions with our Manager or another entity managed by our Manager or one of its affiliates, including Drive Shack, Nationstar and OneMain which may include, but are not limited to, certain financing arrangements, purchases of debt, co-investments in Excessinterests in MSRs, consumer loans, Servicer Advance Investments and other assets that present an actual, potential or perceived conflict of interest. It is possible that actual, potential or perceived conflicts could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.


The management compensation structure that we have agreed to with our Manager, as well as compensation arrangements that we may enter into with our Manager in the future (in connection with new lines of business or other activities), may incentivize our Manager to invest in high risk investments. In addition to its management fee, our Manager is currently entitled to receive incentive compensation. In evaluating investments and other management strategies, the opportunity to earn incentive compensation may lead our Manager to place undue emphasis on the maximization of earnings, including through the use of leverage, at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative than lower-yielding investments. Moreover, because our Manager receives compensation in the form of options in connection with the completion of our common equity offerings, our Manager may be incentivized to cause us to issue additional common stock, which could be dilutive to existing stockholders. In addition, our Manager’s management fee is not tied to our performance and may not sufficiently incentivize our Manager to generate attractive risk-adjusted returns for us.


It would be difficult and costly to terminate our Management Agreement with our Manager.


It would be difficult and costly for us to terminate our Management Agreement with our Manager. The Management Agreement may only be terminated annually upon (i) the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of a simple majority of the outstanding shares of our common stock, that there has been unsatisfactory performance by our Manager that is materially detrimental to us or (ii) a determination by a simple majority of our independent directors that the management fee payable to our Manager is not fair, subject to our Manager’s right to prevent such a termination by accepting a mutually acceptable reduction of fees. Our Manager will be provided 60 days’ prior notice of any termination and will be paid a termination fee equal to the amount of the management fee earned by the Manager during the 12-month period preceding such termination. In addition, following any termination of the Management Agreement, our Manager may require us to purchase its right to receive incentive compensation at a price determined as if our assets were sold for their fair market value (as determined


by an appraisal, taking into account, among other things, the expected future valueperformance of the underlying investments) or otherwise we may continue to pay the incentive compensation to our Manager. These provisions may increase the effective cost to us of terminating the Management Agreement, thereby adversely affecting our ability to terminate our Manager without cause.


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Our directors have approved broad investment guidelines for our Manager and do not approve each investment decision made by our Manager. In addition, we may change our investment strategy without a stockholder vote, which may result in our making investments that are different, riskier or less profitable than our current investments.


Our Manager is authorized to follow broad investment guidelines. Consequently, our Manager has great latitude in determining the types and categories of assets it may decide are proper investments for us, including the latitude to invest in types and categories of assets that may differ from those in which we currently invest. Our directors will periodically review our investment guidelines and our investment portfolio. However, our board does not review or pre-approve each proposed investment or our related financing arrangements. In addition, in conducting periodic reviews, the directors rely primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be difficult or impossible to unwind by the time they are reviewed by the directors, even if the transactions contravene the terms of the Management Agreement. In addition, we may change our investment strategy, including our target asset classes, without a stockholder vote.


Our investment strategy may evolve in light of existing market conditions and investment opportunities, and this evolution may involve additional risks depending upon the nature of the assets in which we invest and our ability to finance such assets on a short or long-term basis. Investment opportunities that present unattractive risk-return profiles relative to other available investment opportunities under particular market conditions may become relatively attractive under changed market conditions, and changes in market conditions may therefore result in changes in the investments we target. Decisions to make investments in new asset categories present risks that may be difficult for us to adequately assess and could therefore reduce our ability to pay dividends on our common stock or have adverse effects on our liquidity, results of operations or financial condition. A change in our investment strategy may also increase our exposure to interest rate, foreign currency, real estate market or credit market fluctuations and expose us to new legal and regulatory risks. In addition, a change in our investment strategy may increase our use of non-match-funded financing, increase the guarantee obligations we agree to incur or increase the number of transactions we enter into with affiliates. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations, liquidity and financial condition.


Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our investments.


Pursuant to our Management Agreement, our Manager will not assume any responsibility other than to render the services called for thereunder in good faith and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Our Manager, its members, managers, officers and employees will not be liable to us or any of our subsidiaries, to our board of directors, or our or any subsidiary’s stockholders or partners for any acts or omissions by our Manager, its members, managers, officers or employees, except by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement. We shall, to the full extent lawful, reimburse, indemnify and hold our Manager, its members, managers, officers and employees and each other person, if any, controlling our Manager harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in the performance of our Manager’s duties under our Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement.


Our Manager’s due diligence of investment opportunities or other transactions may not identify all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.


Our Manager intends to conduct due diligence with respect to each investment opportunity or other transaction it pursues. It is possible, however, that our Manager’s due diligence processes will not uncover all relevant facts, particularly with respect to any assets we acquire from third parties. In these cases, our Manager may be given limited access to information about the investment and will rely on information provided by the target of the investment. In addition, if investment opportunities are scarce, the process for selecting bidders is competitive, or the timeframe in which we are required to complete diligence is short, our ability to conduct a due diligence investigation may be limited, and we would be required to make investment decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, investments and other transactions that initially appear to be viable may prove not to be over time, due to the limitations of the due diligence process or other factors.



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The ownership by our executive officers and directors of shares of common stock, options, or other equity awards of OneMain, Nationstar, and other entities either owned by Fortress funds managed by affiliates of our Manager or managed by our Manager may create, or may create the appearance of, conflicts of interest.


Some of our directors, officers and other employees of our Manager hold positions with OneMain, Nationstar, and other entities either owned by Fortress funds managed by affiliates of our Manager or managed by our Manager and own such entities’ common stock, options to purchase such entities’ common stock or other equity awards. Such ownership may create, or may create the appearance of, conflicts of interest when these directors, officers and other employees are faced with decisions that could have different implications for such entities than they do for us.


Risks Related to the Financial Markets


We do not know whatThe impact of legislative and regulatory changes on our business, as well as the market and industry in which we operate, are uncertain and may adversely affect our business.

The Dodd-Frank Act will have on our business.

Onwas enacted in July 21, 2010, the U.S. enacted the Dodd-Frank Act. The Dodd-Frank Actwhich affects almost every aspect of the U.S. financial services industry, including certain aspects of the markets in which we operate. The Dodd-Frank Actoperate, and imposes new regulations on us and how we conduct our business. As we describe in more detail below, it affects our business in many ways but it is difficult at this time to know exactly how or what the cumulative impact will be.


First, generallyGenerally, the Dodd-Frank Act strengthens the regulatory oversight of securities and capital markets activities by the SEC and empowersestablished the newly-created CFPB to enforce laws and regulations for consumer financial products and services. It requires market participants to undertake additional record-keeping activities and imposes many additional disclosure requirements for public companies.

Moreover, the Dodd-Frank Act contains a risk retention requirement for all asset-backed securities. We issue many asset-backed securities.securities, which we issue. In October 2014, final rules were promulgated by a consortium of regulators implementing the final credit risk retention requirements of Section 941(b) of the Dodd-Frank Act. Under these “Risk Retention Rules,” sponsors of both public and private securitization transactions or one of their majority owned affiliates are required to retain at least 5% of the credit risk of the assets collateralizing such securitization transactions. These regulations generally prohibit the sponsor or its affiliate from directly or indirectly hedging or otherwise selling or transferring the retained interest for a specified period of time, depending on the type of asset that is securitized. Beginning December 2015 and December 2016, respectively, sponsors securitizing residential mortgages and certain other types of assets must comply with the Risk Retention Rules. The Risk Retention Rules provide forCertain limited exemptions from these rules are available for certain types of assets, however, these exemptionswhich may be of limited use under our current market practices. In any event, compliance with these new Risk Retention Rules has increased and will likely continue to increase the administrative and operational costs of asset securitization.


Further, the Dodd-Frank Act imposes mandatory clearing and exchange-trading requirements on many derivatives transactions (including formerly unregulated over-the-counter derivatives) in which we may engage. In addition, the Dodd-Frank Act is expected to increase the margin requirements for derivatives transactions that are not subject to mandatory clearing requirements, which may impact our activities. The Dodd-Frank Act also creates new categories of regulated market participants, such as “swap-dealers,” “security-based swap dealers,” “major swap participants” and “major security-based swap participants,” and subjects or may subject these regulated entities to significant new capital, registration, recordkeeping, reporting, disclosure, business conduct and other regulatory requirements that will give rise to new administrative costs.


Also, under the Dodd-Frank Act, financial regulators belonging to the Financial Stability Oversight Council are requiredauthorized to namedesignate nonbank financial institutions that are deemed to beand financial activities as systemically important to the economy and which may requiretherefore subject to closer regulatory supervision. Such systemically important financial institutions, or “SIFIs,” may be required to operate with greater safety margins, such as higher levels of capital, and may face further limitations on their activities. The determination of what constitutes a SIFI is evolving, and in time SIFIs may include large investment funds and even asset managers. There can be no assurance that we will not be deemed to be a SIFI or engage in activities later determined to be systemically important and thus subject to further regulation.


Even if certain of the new requirements of the Dodd-Frank Actthat are not directly applicable to us they may still increase our costs of entering into transactions with the parties to whom the requirements are directly applicable. For instance, if the new exchange-trading and trade reporting requirements may lead to reductions in the liquidity of derivative transactions causingwe may experience higher pricing or reduced availability of derivatives, or the reduction of arbitrage opportunities for us, which could adversely affect the performance of certain of our trading strategies. Importantly, many key aspects of the changes imposed by the Dodd-Frank Act will continue to be established by various regulatory bodies and other groups over the next several years. As a result, we do not know how significantly

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In addition, there is significant uncertainty regarding the legislative and regulatory outlook for the Dodd-Frank Act and related statutes governing financial services, which may include Dodd-Frank Act amendments, mortgage finance and housing policy in the U.S., and the future structure and responsibilities of regulatory agencies such as the CFPB and the FHFA. For example, in March 2018, the U.S. Senate approved banking reform legislation intended to ease some of the restrictions imposed by the Dodd-Frank Act. Due to this uncertainty, it is not possible for us to predict how future legislative or regulatory proposals by Congress and the current Administration will affect us.us or the market and industry in which we operate, and there can be no assurance that the resulting changes will not have an adverse impact on our business, results of operations, or financial condition. It is possible that the Dodd-Frank Actsuch regulatory changes could, among other things, increase our costs of operating as a public company, impose restrictions on our ability to securitize assets and reduce our investment returns on securitized assets.



We do not know what impact certain U.S. government programs intended to stabilize the economy and the financial markets will have on our business.

In recent years, the U.S. government has taken a number of steps to attempt to strengthen the financial markets and U.S. economy, including direct government investments in, and guarantees of, troubled financial institutions as well as government-sponsored programs such as the Term Asset-Backed Securities Loan Facility program and the Public Private Investment Partnership Program. The U.S. government continues to evaluate or implement an array of other measures and programs intended to help improve U.S. financial and market conditions. While conditions appear to have improved relative to the depths of the global financial crisis, it is not clear whether this improvement will last for a significant period of time. It is not clear what impact the government’s future actions to improve financial and market conditions will have on our business. We may not derive any meaningful benefit from these programs in the future. Moreover, if any of our competitors are able to benefit from one or more of these initiatives, they may gain a significant competitive advantage over us.


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.


The payments we receive on the Agency RMBS in which we invest depend upon a steady stream of payments by borrowers on the underlying mortgages and the fulfillment of guarantees by GSEs. Ginnie Mae is part of a U.S. Government agency and its guarantees are backed by the full faith and credit of the U.S. Fannie Mae and Freddie Mac are GSEs, but their guarantees are not backed by the full faith and credit of the U.S. Government.


In response to the deteriorating financial condition of Fannie Mae and Freddie Mac and the credit market disruption beginning in 2007, Congress and the U.S. Treasury undertook a series of actions to stabilize these GSEs and the financial markets, generally. The Housing and Economic Recovery Act of 2008 was signed into law on July 30, 2008, and established the FHFA, with enhanced regulatory authority over, among other things, the business activities of Fannie Mae and Freddie Mac and the size of their portfolio holdings. On September 7, 2008, FHFA placed Fannie Mae and Freddie Mac into federal conservatorship and, together with the U.S. Treasury, established a program designed to boost investor confidence in Fannie Mae’s and Freddie Mac’s debt and Agency RMBS.


As the conservator of Fannie Mae and Freddie Mac, the FHFA controls and directs the operations of Fannie Mae and Freddie Mac and may (1) take over the assets of and operate Fannie Mae and Freddie Mac with all the powers of the stockholders, the directors and the officers of Fannie Mae and Freddie Mac and conduct all business of Fannie Mae and Freddie Mac; (2) collect all obligations and money due to Fannie Mae and Freddie Mac; (3) perform all functions of Fannie Mae and Freddie Mac which are consistent with the conservator’s appointment; (4) preserve and conserve the assets and property of Fannie Mae and Freddie Mac; and (5) contract for assistance in fulfilling any function, activity, action or duty of the conservator.


Those efforts resulted in significant U.S. Government financial support and increased control of the GSEs.


The U.S. Federal Reserve (the “Fed”) announced in November 2008 a program of large-scale purchases of Agency RMBS in an attempt to lower longer-term interest rates and contribute to an overall easing of adverse financial conditions. Subject to specified investment guidelines, the portfolios of Agency RMBS purchased through the programs established by the U.S. Treasury and the Fed may be held to maturity and, based on mortgage market conditions, adjustments may be made to these portfolios. This flexibility may adversely affect the pricing and availability of Agency securitiesRMBS that we seek to acquire during the remaining term of these portfolios.


There can be no assurance that the U.S. Government’s intervention in Fannie Mae and Freddie Mac will be adequate for the longer-term viability of these GSEs. These uncertainties lead to questions about the availability of and trading market for, Agency RMBS. Accordingly, if these government actions are inadequate and the GSEs defaulted on their guaranteed obligations, suffered losses or ceased to exist, the value of our Agency RMBS and our business, operations and financial condition could be materially and adversely affected.


Additionally, because of the financial problems faced by Fannie Mae and Freddie Mac that led to their federal conservatorships, many policymakersthe Administration and Congress have been examining reform of the GSEs, including the value of a federal mortgage guarantee and the appropriate role for the U.S. government in providing liquidity for residential mortgage loans. In June 2013, legislation titled “Housing Finance Reform and Taxpayer Protection ActThe respective chairmen of 2013” was introduced in the U.S. Senate; in July 2013, legislation titled “Protecting American Taxpayers and Homeowners Act of 2013” was introduced in the U.S. House of Representatives. The bills differ in many respects, but both require the wind-down of the GSEs. Each chairman of the respective Congressional committees of jurisdiction, as well as the Secretary of the Treasury, has each stated that housing finance policyGSE reform, including a possible wind down of the GSEs, is a priority. However, the final details of any plans, policies


or proposals with respect to the housing GSEs are unknown at this time. Other bills have been introduced that change the GSEs’ business charters and eliminate the entities.entities or make other changes to the existing framework. We cannot predict whether or when the introduced legislation, the amended legislation or any futuresuch legislation may be enacted. SuchIf enacted, such legislation could materially and adversely affect the availability of, and trading market for, Agency RMBS and could, therefore, materially and adversely affect the value of our Agency RMBS and our business, operations and financial condition. Finally, the new presidential administration has stated that tax reform will be a legislative priority. A tax reform proposal may contain provisions that impact the housing GSEs in material ways, but the details of such plans and policies are unknown at this time.

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Legislation that permits modifications to the terms of outstanding loans may negatively affect our business, financial condition, liquidity and results of operations.


The U.S. government has enacted legislation that enables government agencies to modify the terms of a significant number of residential and other loans to provide relief to borrowers without the applicable investor’s consent. These modifications allow for outstanding principal to be deferred, interest rates to be reduced, the term of the loan to be extended or other terms to be changed in ways that can permanently eliminate the cash flow (principal and interest) associated with a portion of the loan. These modifications are currently reducing, or in the future may reduce, the value of a number of our current or future investments, including investments in mortgage backed securities and interests in MSRs. As a result, such loan modifications are negatively affecting our business, results of operations, liquidity and financial condition. In addition, certain market participants propose reducing the amount of paperwork required by a borrower to modify a loan, which could increase the likelihood of fraudulent modifications and materially harm the U.S. mortgage market and investors that have exposure to this market. Additional legislation intended to provide relief to borrowers may be enacted and could further harm our business, results of operations and financial condition.


In March 2020, the GSEs and HUD announced forbearance policies for GSE loans and government-insured loans for homeowners experiencing financial hardship associated with COVID-19. These announcements were followed by the signing of the CARES Act in March 2020. We may be obligated to make servicing advances to fund scheduled principal, interest, tax and insurance payments during forbearances when the borrower has failed to make such payments, and potentially various other amounts that may be required to preserve the assets being serviced, which could further harm our business, results of operations and financial condition.

Risks Related to Our Taxation as a REIT


Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code.
 
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Compliance with these requirements must be carefully monitored on a continuing basis. Monitoring and managing our REIT compliance has become challenging due to the increased size and complexity of the assets in our portfolio, a meaningful portion of which are not qualifying REIT assets. There can be no assurance that our Manager’s personnel responsible for doing so will be able to successfully monitor our compliance or maintain our REIT status.


Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders.


We intend to operate in a manner intended to qualify us as a REIT for U.S. federal income tax purposes. Our ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. See “—Risks Related to our Business—The valuations of our assets are subject to uncertainty sincebecause most of our assets are not traded in an active market,” and “—Risks Related to Our Business—Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or our exclusion from the 1940 Act.” Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. Moreover, the proper classification of one or more of our investments (such as TBAs) may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not contend that our investments violate the REIT requirements.


If we were to fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and distributions to stockholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of, and market price for, our stock. See also “—Our failure to qualify as a REIT would cause our stock to be delisted from the NYSE.”


Unless entitled to relief under certain provisions of the Internal Revenue Code, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we initially ceased to qualify as a REIT. The rule against re-electingre-
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electing REIT status following a loss of such status would also apply to us if Drive Shack failed to qualify as a REIT for itsany taxable years endingyear ended on or before December 31, 2014, asand we arewere treated as a successor to Drive Shack for U.S. federal income tax purposes. Although Drive Shack (i) represented in the separation and distribution agreement that it entered into with us on April 26, 2013


(the (the “Separation and Distribution Agreement”) that it has no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT and (ii) covenanted in the Separation and Distribution Agreement to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years endingended 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 IRS to the effect that Drive Shack’s failure to maintain its REIT status will not cause us to fail to qualify as a REIT under the successor REIT rule referred to above), no assurance can be given that such representation and covenant would prevent us from failing to qualify as a REIT. Although, in the event of a breach, we may be able to seek damages from Drive Shack, there can be no assurance that such damages, if any, would appropriately compensate us. In addition, if Drive Shack were to fail to qualify as a REIT despite its reasonable best efforts, we would have no claim against Drive Shack.


Our failure to qualify as a REIT would cause our stock to be delisted from the NYSE.


The NYSE requires, as a condition to the listing of our shares, that we maintain our REIT status. Consequently, if we fail to maintain our REIT status, our shares would promptly be delisted from the NYSE, which would decrease the trading activity of such shares. This could make it difficult to sell shares and would likely cause the market volume of the shares trading to decline.


If we were delisted as a result of losing our REIT status and desired to relist our shares on the NYSE, we would have to reapply to the NYSE to be listed as a domestic corporation. As the NYSE’s listing standards for REITs are less onerous than its standards for domestic corporations, it would be more difficult for us to become a listed company under these heightened standards. We might not be able to satisfy the NYSE’s listing standards for a domestic corporation. As a result, if we were delisted from the NYSE, we might not be able to relist as a domestic corporation, in which case our shares could not trade on the NYSE.


The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT.


We enter into financing arrangements that are structured as sale and repurchase agreements pursuant to which we nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase these assets at a later date in exchange for a purchase price. Economically, these agreements are financings that are secured by the assets sold pursuant thereto. We believe that, for purposes of the REIT asset and income tests, we should be treated as the owner of the assets that are the subject of any such sale and repurchase agreement, notwithstanding that those agreements generally transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the sale and repurchase agreement, in which case we might fail to qualify as a REIT.


The failure of our Excess MSRs to qualify as real estate assets or the income from our Excess MSRs to qualify as mortgage interest could adversely affect our ability to qualify as a REIT.


We have received from the IRS a private letter ruling substantially to the effect that our Excess MSRs represent interests in mortgages on real property and thus are qualifying “real estate assets” for purposes of the REIT asset test, which generate income that qualifies as interest on obligations secured by mortgages on real property for purposes of the REIT income test. The ruling is based on, among other things, certain assumptions as well as on the accuracy of certain factual representations and statements that we and Drive Shack have made to the IRS. If any of the representations or statements that we have made in connection with the private letter ruling, are, or become, inaccurate or incomplete in any material respect with respect to one or more Excess MSR investments, or if we acquire an Excess MSR investment with terms that are not consistent with the terms of the Excess MSR investments described in the private letter ruling, then we will not be able to rely on the private letter ruling. If we are unable to rely on the private letter ruling with respect to an Excess MSR investment, the IRS could assert that such Excess MSR investments do not qualify under the REIT asset and income tests, and if successful, we might fail to qualify as a REIT.


Dividends payable by REITs do not qualify for the reduced tax rates available for some “qualified dividends.”


Dividends payable to domestic stockholders that are individuals, trusts, and estates are generally taxed at reduced tax rates.rates applicable to “qualified dividends.” Dividends payable by REITs, however, generally are not eligible for thethose reduced rates. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates
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to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock. In addition, the relative attractiveness of real estate in general may be adversely affected by the favorable tax treatment given to non-REIT corporate dividends, which could affect the value of our real estate assets negatively.




REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan.


We generally must distribute annually at least 90% of our REIT taxable income, excluding any net capital gain, in order for corporate income tax not to apply to earnings that we distribute. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Internal Revenue Code. Certain of our assets, such as our investment in consumer loans, generate substantial mismatches between taxable income and available cash. As a result, the requirement to distribute a substantial portion of our net taxable income could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on unfavorable terms; (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt; or (iv) make taxable distributions of our capital stock or debt securities in order to comply with REIT requirements. Further, amounts distributed will not be available to fund investment activities. If we fail to obtain debt or equity capital in the future, it could limit our ability to satisfy our liquidity needs, which could adversely affect the value of our common stock.


We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them.


Based on IRS guidance concerning the classification of Excess MSRs, we intend to treat our Excess MSRs as ownership interests in the interest payments made on the underlying residential mortgage loans, akin to an “interest only” strip. Under this treatment, for purposes of determining the amount and timing of taxable income, each Excess MSR is treated as a bond that was issued with original issue discount on the date we acquired such Excess MSR. In general, we will be required to accrue original issue discount based on the constant yield to maturity of each Excess MSR, and to treat such original issue discount as taxable income in accordance with the applicable U.S. federal income tax rules. The constant yield of an Excess MSR will be determined, and we will be taxed, based on a prepayment assumption regarding future payments due on the residential mortgage loans underlying the Excess MSR. If the residential mortgage loans underlying an Excess MSR prepay at a rate different than that under the prepayment assumption, our recognition of original issue discount will be either increased or decreased depending on the circumstances. Thus, in a particular taxable year, we may be required to accrue an amount of income in respect of an Excess MSR that exceeds the amount of cash collected in respect of that Excess MSR. Furthermore, it is possible that, over the life of the investment in an Excess MSR, the total amount we pay for, and accrue with respect to, the Excess MSR may exceed the total amount we collect on such Excess MSR. No assurance can be given that we will be entitled to a deduction for such excess, meaning that we may be required to recognize “phantom income” over the life of an Excess MSR.


Other debt instruments that we may acquire, including consumer loans, may be issued with, or treated as issued with, original issue discount. Those instruments would be subject to the original issue discount accrual and income computations that are described above with regard to Excess MSRs.


Under the Tax Cuts and Jobs Act (“TCJA”) enacted in late 2017, we generally will be required to take certain amounts into income no later than the time such amounts are reflected on certain financial statements. The application of this rule may require the accrual of, among other categories of income, income with respect to certain debt instruments or mortgage-backed securities, such as original issue discount, earlier than would be the case under the general tax rules, although the precise application of this rule is unclear at this time.

We may acquire debt instruments in the secondary market for less than their face amount. The discount at which such debt instruments are acquired may reflect doubts about their ultimate collectability rather than current market interest rates. The amount of such discount will nevertheless generally be treated as “market discount” for U.S. federal income tax purposes. Accrued market discount is reported as income when, and to the extent that, any payment of principal of the debt instrument is made. If we collect less on the debt instrument than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions.


In addition, we may acquire debt instruments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding instrument are “significant modifications” under the applicable U.S. Treasury regulations, the modified instrument will be considered to have been reissued to us in a debt-for-debt exchange with the borrower. In that event,
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we may be required to recognize taxable gain to the extent the principal amount of the modified instrument exceeds our adjusted tax basis in the unmodified instrument, even if the value of the instrument or the payment expectations have not changed. Following such a taxable modification, we would hold the modified loan with a cost basis equal to its principal amount for U.S. federal tax purposes.


Finally, in the event that any debt instruments acquired by us are delinquent as to mandatory principal and interest payments, or in the event payments with respect to a particular instrument are not made when due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income as it accrues, despite doubt as to its ultimate collectability. Similarly, we may be required to accrue interest income with respect to debt instruments at the stated rate regardless of whether corresponding cash payments are received or are ultimately collectible. In each case, while we would in general ultimately have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the utility of that deduction could depend on our having taxable income of an appropriate character in that later year or thereafter.




In any event, if our investments generate more taxable income than cash in any given year, we may have difficulty satisfying our annual REIT distribution requirement.


We may be unable to generate sufficient cash from operations to pay our operating expenses and to pay distributions to our stockholders.


As a REIT, we are generally required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and not including net capital gains) each year to our stockholders. To qualify for the tax benefits accorded to REITs, we intend to make distributions to our stockholders in amounts such that we distribute all or substantially all of our net taxable income, subject to certain adjustments, although there can be no assurance that our operations will generate sufficient cash to make such distributions. Moreover, our ability to make distributions may be adversely affected by the risk factors described herein. See also “—Risks Related to our Common Stock—We have not established a minimum distribution payment level, and we cannot assure you of our ability to pay distributions in the future.”


The stock ownership limit imposed by the Internal Revenue Code for REITs and our certificate of incorporation may inhibit market activity in our stock and restrict our business combination opportunities.


In order for us to maintain our qualification as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) at any time during the last half of each taxable year after our first taxable year. Our certificate of incorporation, with certain exceptions, authorizes our board of directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Stockholders are generally restricted from owning more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of capital stock. Our board may grant an exemption in its sole discretion, subject to such conditions, representations and undertakings as it may determine in its sole discretion. These ownership limits could delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.


Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.


Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Moreover, if a REIT distributes less than 85% of its ordinary income and 95% of its capital gain net income plus any undistributed shortfall from the prior year (the “Required Distribution”) to its stockholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then it is required to pay an excise tax on 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our stockholders. In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through TRSs. Such subsidiaries generally will be subject to corporate level income tax at regular rates and the payment of such taxes would reduce our return on the applicable investment. Currently, we hold somesignificant portions of our investments inand activities through TRSs, including Servicer Advance Investments, MSRs and MSRs,servicing and origination activities, and we may contribute other non-qualifying investments, such as our investment in consumer loans, to a TRS in the future.


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Complying with the REIT requirements may negatively impact our investment returns or cause us to forgo otherwise attractive opportunities, liquidate assets or contribute assets to a TRS.


To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. As a result of these tests, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, forgo otherwise attractive investment opportunities, liquidate assets in adverse market conditions or contribute assets to a TRS that is subject to regular corporate federal income tax. Our ability to acquire and hold MSRs, interests in consumer loans, Servicer Advance Investments and other investments is subject to the applicable REIT qualification tests, and we may have to hold these interests through TRSs, which would negatively impact our returns from these assets. In general, compliance with the REIT requirements may hinder our ability to make and retain certain attractive investments.




Complying with the REIT requirements may limit our ability to hedge effectively.


The existing REIT provisions of the Internal Revenue Code may substantially limit our ability to hedge our operations because a significant amount of the income from those hedging transactions is likely to be treated as non-qualifying income for purposes of both REIT gross income tests. In addition, we must limit our aggregate income from non-qualified hedging transactions, from our provision of services and from other non-qualifying sources, to less than 5% of our annual gross income (determined without regard to gross income from qualified hedging transactions).


As a result, we may have to limit our use of certain hedging techniques or implement those hedges through TRSs. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur or could increase the cost of our hedging activities. If we fail to comply with these limitations, we could lose our REIT qualification for U.S. federal income tax purposes, unless our failure was due to reasonable cause, and not due to willful neglect, and we meet certain other technical requirements. Even if our failure were due to reasonable cause, we might incur a penalty tax. See also “—Risks Related to Our Business—Any hedging transactions that we enter into may limit our gains or result in losses.”


Distributions to tax-exempt investors may be classified as unrelated business taxable income.


Neither ordinary nor capital gain distributions with respect to our stock nor gain from the sale of stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:
 
•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.


The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.


We may enter into securitization or other financing transactions that result in the creation of taxable mortgage pools for U.S. federal income tax purposes. As a REIT, so long as we own 100% of the equity interests in a taxable mortgage pool, we would generally not be adversely affected by the characterization of a securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. In addition, to the extent that our stock is owned by tax exempt “disqualified organizations,” such as certain government-related entities and charitable remainder trusts that are not subject to tax on unrelated business income, we could incur a corporate level tax on a portion of our income from the taxable mortgage pool. In that case, we might reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax. Moreover, we may be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be
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considered to be equity interests for tax purposes. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.


Uncertainty exists with respect to the treatment of TBAs for purposes of the REIT asset and income tests, and the failure of TBAs to be qualifying assets or of income/gains from TBAs to be qualifying income could adversely affect our ability to qualify as a REIT.


We purchase and sell Agency RMBS through TBAs and recognize income or gains from the disposition of those TBAs, through dollar roll transactions or otherwise. In a dollar roll transaction, we exchange an existing TBA for another TBA with a different settlement date. There is no direct authority with respect to the qualification of TBAs as real estate assets or U.S. Government securities for purposes of the 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property (including interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross income test. For a particular taxable year, we would treat such TBAs as qualifying assets for purposes of the REIT asset tests, and income and gains from such TBAs as qualifying income for purposes of the 75% gross income test, to the extent set forth in an opinion from Skadden, Arps, Slate, Meagher & Flom LLP substantially to the effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of the underlying Agency RMBS, and (ii) for


purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of such TBAs should be treated as gain from the sale or disposition of the underlying Agency RMBS. Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS would not successfully challenge the conclusions set forth in such opinions. In addition, it must be emphasized that any opinion of Skadden, Arps, Slate, Meagher & Flom LLP would be based on various assumptions relating to any TBAs that we enter into and would be conditioned upon fact-based representations and covenants made by our management regarding such TBAs. No assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income. If the IRS were to successfully challenge any conclusions of Skadden, Arps, Slate, Meagher & Flom LLP, we could be subject to a penalty tax or we could fail to qualify as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.


The tax on prohibited transactions will limit our ability to engage in transactions that would be treated as prohibited transactions for U.S. federal income tax purposes.


Net income that we derive from a “prohibited transaction” is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (including mortgage loans, but other than foreclosure property, as discussed below) that is held primarily for sale to customers in the ordinary course of our trade or business. We might be subject to this tax if we were to dispose of or securitize loans or Excess MSRs in a manner that was treated as a prohibited transaction for U.S. federal income tax purposes.


We intend to conduct our operations so that no asset that we own (or are treated as owning) will be treated as, or as having been, held-for-sale to customers, and that a sale of any such asset will not be treated as having been in the ordinary course of our business. As a result, we may choose not to engage in certain sales of loans or Excess MSRs at the REIT level, and may limit the structures we utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us. In addition, whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any property that we sell will not be treated as property held-for-sale to customers, or that we can comply with certain safe-harbor provisions of the Internal Revenue Code that would prevent such treatment. The 100% prohibited transaction tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our activities to prevent prohibited transaction characterization.

Legislative or other actions could have a negative effect on us.

The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Congress and the current administration have announced their intention to enact significant reform of the Internal Revenue Code, including significant changes to taxation of business entities. There is a substantial lack of clarity around the likelihood, timing and details of any such tax reform and the impact of any potential tax reform on us or an investment in our securities. Any such changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, U.S. Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification, or could have other adverse consequences. For example, legislation which provides for a significant decrease in the U.S. federal corporate income tax rate could result in a material decrease in the carrying value of our deferred tax assets. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our securities.


Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.


To qualify as a REIT, we must comply with requirements regarding the composition of our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.



Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.


The present U.S. federal income tax treatment of REITs and their shareholders may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in our shares. The U.S. federal income tax rules, including those dealing with REITs, are constantly under review
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by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. For example, the current Administration has indicated that it intends to modify key aspects of the Internal Revenue Code, including by increasing corporate and individual tax rates. We cannot predict the impact, if any, of these proposed changes to our business or an investment in our stock.

Risks Related to our Common Stock


There can be no assurance that the market for our stock will provide you with adequate liquidity.


Our common stock began trading (on a when issued basis) on the NYSE in May 2013, and our preferred stock began trading on May 2, 2013.the NYSE in July 2019. There can be no assurance that an active trading market for our common and preferred stock will be sustained in the future, and the market price of our common and preferred stock may fluctuate widely, depending upon many factors, some of which may be beyond our control. These factors include, without limitation:
 
•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, dispositions or dispositions;other transactions;
•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.


Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common and preferred stock.


Sales or issuances of shares of our common stock could adversely affect the market price of our common stock.


Sales or issuances of substantial amounts of shares of our common stock, or the perception that such sales or issuances might occur, could adversely affect the market price of our common stock. The issuance of our common stock in connection with property, portfolio or business acquisitions or the exercise of outstanding options or otherwise could also have an adverse effect on the market price of our common stock. We have an effective registration statement on file to sell common stock or convertible securities in public offerings.


Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.


As a public company, we are required to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We have made investments through joint ventures, such as our investment in consumer loans, and accounting for such investments can increase the complexity of maintaining effective internal control over financial reporting. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that our internal control over financial reporting was effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certifymay issue an adverse opinion as to the effectiveness of our internal control over financial reporting. Matters impacting our internal control over financial reporting may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in the effectiveness of our internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in our stock price and impairing our ability to raise capital.


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Your percentage ownership in us may be diluted in the future.


Your percentage ownership in us may be diluted in the future because of equity awards that we expect will be granted to our Manager, to the directors, officers and employees of our Manager who perform services for us, and to our directors, officers and employees, as well as other equity instruments such as debt and equity financing. We have adopted 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 our Manager, to the directors, officers, employees, service providers, consultants and advisor of our Manager who perform services for us, and to our directors, officers, employees, service providers, consultants and advisors. We reserved 15 million shares of our common stock for issuance under the Plan. The term of the Plan expires in 2023. On the first day of each fiscal year beginning during the term of the Plan, that number will be increased 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. In connection with any offering of our common or preferred stock, we will issue to our Manager options relating to shares of our common stock, representing 10% of the number of shares being offered. Our 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 relating to any options granted to the Manager in connection with an offering of our common stock would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules.


We may incur or issue debt or issue equity, which may negatively affect the market price of our common stock.


We may in the future incur or issue debt or issue equity or equity-related securities. In the event of our liquidation, lenders and holders of our debt and holders of our preferred stock (if any) would receive a distribution of our available assets before common stockholders. Any future incurrence or issuance of debt would increase our interest cost and could adversely affect our results of operations and cash flows. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis. Therefore, additional issuances of common stock, directly or through convertible or exchangeable securities, warrants or options, will dilute the holdings of our existing common stockholders and such issuances, or the perception of such issuances, may reduce the market price of our common stock. AnyOur preferred stock has, and any additional preferred stock issued by us would likely have, a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders. Because our decision to incur or issue debt or issue equity or equity-related securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future incurrence or issuance of debt or issuance of equity or equity-related securities will adversely affect the market price of our common stock.


We have not established a minimum distribution payment level for our common stock, and we cannot assure you of our ability to pay distributions in the future.


We intend to make quarterly distributions of our REIT taxable income to holders of our common stock out of assets legally available therefor. We have not established a minimum distribution payment level and our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this report. Any distributions will be authorized by our board of directors and declared by us based upon a number of factors, including our actual and anticipated results of operations, liquidity and financial condition, restrictions under Delaware law or applicable financing covenants, our REIT taxable income, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, our operating expenses and other factors our directors deem relevant.


Our board of directors approved two increases in our quarterly dividends during 2017, which has resulted in reduced cash flows and we will begin making distributions on our preferred stock issued in July 2019, beginning in November 2019, which will further reduce our cash flows. Although we have other sources of liquidity, such as sales of and repayments from our investments, potential debt financing sources and the issuance of equity securities, there can be no assurance that we will generate sufficient cash or achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions in the future.


Furthermore, while we are required to make distributions in order to maintain our REIT status (as described above under “—Risks Related to our Taxation as a REIT—We may be unable to generate sufficient revenuecash from operations to pay our operating expenses and to pay distributions to our stockholders”), we may elect not to maintain our REIT status, in which case we would no longer be required to make such distributions. Moreover, even if we do elect to maintain our REIT status, we may elect to comply with the applicable requirements by, after completing various procedural steps, distributing, under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in shares of common stock in lieu of cash, such action could
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negatively and materially affect our business, results of operations, liquidity and financial condition as well as the market price of our common stock. No assurance can be given that we will make any distributions on shares of our common stock in the future.


We may in the future choose to make distributions in our own stock, in which case you could be required to pay income taxes in excess of any cash distributions you receive.


We may in the future make taxable distributions that are payable in cash and shares of our common stock at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of the distribution as ordinary income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such distributions in excess of the cash distributions received. If a U.S. stockholder sells the stock that it receives as a distribution in order to pay this tax, the sale proceeds may be less than the


amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distributions, including in respect of all or a portion of such distribution that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on distributions, it may put downward pressure on the market price of our common stock.


In August 2017, theThe IRS has issued guidance authorizing elective cash/stock dividends to be made by public REITs where there is a minimum (ofcap of at least 20%) is placed on the amount of cash that may be paid as part of the dividend, provided that certain requirements are met. It is unclear whether and to what extent we would be able to or choose to pay taxable distributions in cash and stock. In addition, no assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.


An increase in market interest rates may have an adverse effect on the market price of our common stock.


One of the factors that investors may consider in deciding whether to buy or sell shares of our common stock is our distribution rate as a percentage of our stock price relative to market interest rates. If the market price of our common stock is based primarily on the earnings and return that we derive from our investments and income with respect to our investments and our related distributions to stockholders, and not from the market value of the investments themselves, then interest rate fluctuations and capital market conditions will likely affect the market price of our common stock. For instance, if market interest rates rise without an increase in our distribution rate, the market price of our common stock could decrease, as potential investors may require a higher distribution yield on our common stock or seek other securities paying higher distributions or interest. In addition, rising interest rates would result in increased interest expense on our outstanding and future (variable and fixed) rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay distributions.


Provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the market price of our common stock.


Our certificate of incorporation, bylaws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:
 
•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;
•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;
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•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.


Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is considered favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or a change in our management and board of directors and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.


ERISA may restrict investments by plans in our common stock.


A plan fiduciary considering an investment in our common stock should consider, among other things, whether such an investment is consistent with the fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including whether such investment might constitute or give rise to a prohibited transaction under ERISA, the Internal Revenue


Code or any substantially similar federal, state or local law and, if so, whether an exemption from such prohibited transaction rules is available.


Risks Related to the Caliber Acquisition


Uncertainties associated with the Caliber Acquisition may cause a loss of management personnel and other key employees, and we may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect our future business and operations.

We are dependent on the experience and industry knowledge of our management personnel and other key employees to execute our business plans. Our success after the completion of the Caliber Acquisition will depend in part upon our ability to attract, motivate and retain key management personnel and other key employees. Current and prospective employees may experience uncertainty about their roles within our Company following the completion of the Caliber Acquisition, which may have an adverse effect on our ability to attract, motivate or retain management personnel and other key employees. In addition, no assurance can be given that we will be able to attract, motivate or retain management personnel and other key employees to the same extent after the completion of the Caliber Acquisition.

We may be unable to successfully integrate the businesses and realize the anticipated benefits of the Caliber Acquisition.

The success of the Caliber Acquisition will depend, in part, on our ability to successfully combine Caliber, which currently operates as an independent company, with our business and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the combination. If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully, or at all, or may take longer to realize than expected and the value of our common stock may be harmed. Additionally, as a result of the Caliber Acquisition, rating agencies may take negative actions with respect to our credit ratings, which may increase our financing costs, including in connection with the financing of the Caliber Acquisition. Caliber’s business is subject to many of the same risks of our businesses relating to mortgage origination, loan servicing and other areas as described in this report. Following the Caliber Acquisition, our exposure to the risks involved in those businesses has increased due to the substantial increase of our operations in those areas resulting from the Caliber Acquisition.

The Caliber Acquisition involves the integration of Caliber with our existing business, which is a complex, costly and time-consuming process. The integration of Caliber into our business may result in material challenges, including, without limitation:
•the diversion of management’s attention from ongoing business concerns and performance shortfalls as a result of the devotion of management’s attention to the Caliber integration;
•managing a larger Company;
•maintaining employee morale and attracting and motivating and retaining management personnel and other key employees;
•the possibility of faulty assumptions underlying expectations regarding the integration process;
•retaining existing business and operational relationships and attracting new business and operational relationships;
•consolidating corporate and administrative infrastructures and eliminating duplicative operations;
•coordinating geographically separate organizations;
•unanticipated issues in integrating information technology, communications and other systems;
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•unanticipated changes in federal or state laws or regulations; and
•unforeseen expenses or delays associated with the Caliber integration.

Many of these factors will be outside of our control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect our financial position, results of operations and cash flows.

We may not have discovered undisclosed liabilities of Caliber during our due diligence process.

In the course of the due diligence review of Caliber that we conducted prior to the execution of the SPA, we may not have discovered, or may have been unable to quantify, undisclosed liabilities of Caliber and its subsidiaries and we do not have rights of indemnification against the seller for any such liabilities. Examples of such undisclosed liabilities may include, but are not limited to, unpaid taxes or pending or threatened litigation or regulatory matters. Any such undisclosed liabilities could have an adverse effect on our business, results of operations, financial condition and cash flows.

Stockholder or other litigation could result in the payment of damages and/or may materially and adversely affect our business, financial condition results of operations and liquidity.

Transactions such as the Caliber Acquisition often give rise to lawsuits by stockholders or other third parties. Stockholders may pursue litigation relating to the Caliber Acquisition. The defense or settlement of any lawsuit or claim regarding the Caliber Acquisition may materially and adversely affect our business, financial condition, results of operations and liquidity. Further, such litigation could be costly and could divert our time and attention from the operation of the business.

Certain of Caliber’s material vendors have operations in India that could be adversely affected by changes in political or economic stability or by government policies.

Certain of Caliber’s material vendors currently have operations located in India, which is subject to relatively higher political and social instability than the United States and may lack the infrastructure to withstand political unrest, natural disasters or global pandemics, including, for example, the recent resurgence in COVID-19 cases. The political or regulatory climate in the United States, or elsewhere, also could change so that it would not be lawful or practical for us to use vendors with international operations in the manner in which we currently use them. If Caliber could no longer utilize vendors operating in India or if those vendors were required to transfer some or all of their operations to another geographic area, we would incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 

ITEM 4. MINE SAFETY DISCLOSURES
 
Not Applicable.
 

ITEM 5. OTHER INFORMATION


None.




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ITEM 6. EXHIBITS

Exhibit NumberExhibit Description
2.1†*
Separation and Distribution Agreement, dated as of April 26, 2013, by and between New Residential Investment Corp. and Newcastle Investment Corp. (incorporated by reference to Exhibit 2.1 to Amendment No. 6 of New Residential Investment Corp.’s Registration Statement on Form 10, filed April 29, 2013)
2.2†*
Purchase Agreement, dated as of March 5, 2013, by and among the Sellers listed therein, HSBC Finance Corporation and SpringCastle Acquisition LLC (incorporated by reference to Exhibit 99.1 to Drive Shack Inc.’s Current Report on Form 8-K, filed March 11, 2013)
2.3†*
Master Servicing Rights Purchase Agreement, dated as of December 17, 2013, by and between Nationstar Mortgage LLC and Advance Purchaser LLC (incorporated by reference to Exhibit 2.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 23, 2013)
2.4†*
Sale Supplement (Shuttle 1), dated as of December 17, 2013, by and between Nationstar Mortgage LLC and Advance Purchaser LLC (incorporated by reference to Exhibit 2.2 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 23, 2013)
2.5†*
Sale Supplement (Shuttle 2), dated as of December 17, 2013, by and between Nationstar Mortgage LLC and Advance Purchaser LLC (incorporated by reference to Exhibit 2.3 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 23, 2013)
2.6†*
Sale Supplement (First Tennessee), dated as of December 17, 2013, by and between Nationstar Mortgage LLC and Advance Purchaser LLC (incorporated by reference to Exhibit 2.4 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 23, 2013)
2.7†*
Purchase Agreement, dated as of March 31, 2016, by and among SpringCastle Holdings, LLC, Springleaf Acquisition Corporation, Springleaf Finance, Inc., NRZ Consumer LLC, NRZ SC America LLC, NRZ SC Credit Limited, NRZ SC Finance I LLC, NRZ SC Finance II LLC, NRZ SC Finance III LLC, NRZ SC Finance IV LLC, NRZ SC Finance V LLC, BTO Willow Holdings II, L.P. and Blackstone Family Tactical Opportunities Investment Partnership - NQ - ESC L.P., and solely with respect to Section 11(a) and Section 11(g), NRZ SC America Trust 2015-1, NRZ SC Credit Trust 2015-1, NRZ SC Finance Trust 2015-1, and BTO Willow Holdings, L.P. (incorporated by reference to Exhibit 2.10 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, filed on May 4, 2016)
2.8*
Securities Purchase Agreement, dated as of November 29, 2017, by and among NRM Acquisition LLC, Shellpoint Partners LLC, the Sellers party thereto and Shellpoint Services LLC, as original representative of the Seller (incorporated by reference to Exhibit 2.8 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on February 15, 2018)
2.9*
Amendment No. 1 to the Securities Purchase Agreement, dated as of July 3, 2018, by and among NRM Acquisition LLC, Shellpoint Partners LLC, the Sellers party thereto and Shellpoint Representative LLC, as replacement representative of the Sellers (incorporated by reference to Exhibit 2.9 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018)
2.10
Asset Purchase Agreement among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company, dated June 17, 2019 (incorporated by reference to Exhibit 2.10 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019)
2.11
Amendment No. 1 to the Asset Purchase Agreement, dated as of July 9, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.11 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.12
Amendment No. 2 to the Asset Purchase Agreement, dated as of August 30, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.12 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.13
Amendment No. 3 to the Asset Purchase Agreement, dated as of September 4, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.13 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.14
Amendment No. 4 to the Asset Purchase Agreement, dated as of September 5, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.14 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
164

Exhibit NumberExhibit Description
2.15
Amendment No. 5 to the Asset Purchase Agreement, dated as of September 6, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.15 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.16
Amendment No. 6 to the Asset Purchase Agreement, dated as of September 9, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.16 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.17
Amendment No. 7 to the Asset Purchase Agreement, dated as of September 17, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.17 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.18
Amendment No. 8 to the Asset Purchase Agreement, dated as of September 30, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.18 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019)
2.19
Amendment No. 9 to the Asset Purchase Agreement, dated as of November 27, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.19 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 19, 2020)
2.20
Amendment No. 10 to the Asset Purchase Agreement, dated as of December 12, 2019, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.20 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 19, 2020)
2.21
Amendment No. 11 to the Asset Purchase Agreement, dated as of January 17, 2020, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.21 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 19, 2020)
2.22
Amendment No. 12 to the Asset Purchase Agreement, dated as of January 24, 2020, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.22 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 19, 2020)
2.23
Settlement and Release Agreement, dated as of January 27, 2020, among New Residential Investment Corp., Ditech Holding Corporation, a Maryland corporation, and Ditech Financial LLC, a Delaware limited liability company (incorporated by reference to Exhibit 2.23 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 19, 2020)
2.24*
Stock Purchase Agreement, dated April 14, 2021, by and between LSF Pickens Holdings, LLC, Caliber Home Loans, Inc., and New Residential Investment Corp. (incorporated by reference to Exhibit 2.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed April 14, 2021)
3.1
Amended and Restated Certificate of Incorporation of New Residential Investment Corp. (incorporated by reference to Exhibit 3.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed May 3, 2013)
3.2
Amended and Restated Bylaws of New Residential Investment Corp. (incorporated by reference to Exhibit 3.2 to New Residential Investment Corp.’s Current Report on Form 8-K, filed May 3, 2013)
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of New Residential Investment Corp. (incorporated by reference to Exhibit 3.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed October 17, 2014)
3.4
Certificate of Designations of New Residential Investment Corp., designating the Company’s 7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.4 to New Residential Investment Corp.’s Form 8-A, filed July 2, 2019)
3.5
Certificate of Designations of New Residential Investment Corp., designating the Company’s 7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.5 to New Residential Investment Corp.’s Form 8-A, filed August 15, 2019)
3.6
Certificate of Designations of New Residential Investment Corp., designating the Company’s 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.6 to New Residential Investment Corp.’s Form 8-A, filed February 14, 2020)
165

Exhibit NumberExhibit Description
3.7
Certificate of Designations of New Residential Investment Corp., designating the Company’s 7.00% Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 3.7 to New Residential Investment Corp.’s Form 8-A, filed September 17, 2021)
4.1
Specimen Series A Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-A filed July 2, 2019)
4.2
Specimen Series B Preferred Stock Certificate of New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-A, filed August 15, 2019)
4.3
Specimen Series C Preferred Stock Certificate of New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-A, filed February 14, 2020)
4.4
Specimen Series D Preferred Stock Certificate of New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-A, filed September 17, 2021)
4.5
Second Amended and Restated Indenture, dated as of August 17, 2017,September 7, 2018, by and among NRZ Advance Receivables Trust 2015-ONI,2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing and Credit Suisse AG, New York Branch (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed August 22, 2017)September 7, 2018)
4.24.6
Omnibus Amendment to Term Note Indenture Supplements, dated as of August 17, 2017, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.2 to New Residential Investment Corp.’s Current Report on Form 8-K, filed August 22, 2017)
4.3
Series 2015-T1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.19 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015)
4.4
Series 2015-T2 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.20 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015)


Exhibit NumberExhibit Description
4.54.7
Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.21 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015)
4.6
Amendment No. 1, dated as of November 24, 2015, to the Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.22 to New Residential Investment Corp.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
4.7
Amendment No. 2, dated as of March 22, 2016, to the Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed March 24, 2016)
4.8
Amendment No. 3, dated as of May 9, 2016, to the Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed May 13, 2016)
4.9
Amendment No. 4, dated as of May 27, 2016, to the Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed June 3, 2016)
4.10
Amendment No. 5, dated as of December 15, 2016, to the Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.3 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 16, 2016)
4.11
Amendment No. 6, dated as of August 17, 2017, to Series 2015-VF1 Indenture Supplement, dated as of August 28, 2015, to the Amended and Restated Indenture, dated as of August 21, 2017, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.3 to New Residential Investment Corp.’s Current Report on Form 8-K, filed August 22, 2017)
4.12
Series 2015-T3 Indenture Supplement, dated as of November 24, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.23 to New Residential Investment Corp.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
4.13
Series 2015-T4 Indenture Supplement, dated as of November 24, 2015, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.24 to New Residential Investment Corp.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
4.14
Series 2016-T1 Indenture Supplement, dated as of June 30, 2016, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed July 7, 2016)
4.15
Series 2016-T2 Indenture Supplement, dated as of October 25, 2016, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed October 31, 2016)


Exhibit NumberExhibit Description
4.164.8
Series 2016-T3 Indenture Supplement, dated as of October 25, 2016, to the Indenture, dated as of August 28, 2015, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.2 to New Residential Investment Corp.’s Current Report on Form 8-K, filed October 31, 2016)
4.174.9
Series 2016-T4 Indenture Supplement, dated as of December 15, 2016, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 16, 2016)
4.184.10
Series 2016-T5 Indenture Supplement, dated as of December 15, 2016, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.2 to New Residential Investment Corp.’s Current Report on Form 8-K, filed December 16, 2016)
4.194.11
Series 2017-T1 Indenture Supplement, dated as of February 7, 2017, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K filed February 7, 2017)
4.12
Series 2018-VF1 Indenture Supplement, dated as of March 22, 2018, to the Amended and Restated Indenture, dated as of August 17, 2017, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, JPMorgan Chase Bank, N.A. and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.'s Current Report on Form 8-K, filed March 28, 2018)
4.13
Omnibus Amendment to Certain Agreements Relating to the NRZ Advance Receivables Trust 2015-ON1, dated as of September 7, 2018, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, Credit Suisse AG, New York Branch, New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing and New Residential Investment Corp. (incorporated by reference to Exhibit 4.2 to New Residential Investment Corp.’s Current Report on Form 8-K, filed September 7, 2018)
166

Exhibit NumberExhibit Description
4.14
Amendment No. 1 to Series 2018-VF1 Indenture Supplement, dated as of September 7, 2018, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing, JPMorgan Chase Bank, N.A. and New Residential Investment Corp. (incorporated by reference to Exhibit 4.3 to New Residential Investment Corp.’s Current Report on Form 8-K, filed September 7, 2018)
4.15
Amendment No. 2 to Series 2018-VF1 Indenture Supplement, dated as of September 28, 2018, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing, JPMorgan Chase Bank, N.A. and New Residential Investment Corp. (incorporated by reference to Exhibit 4.11 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q, filed May 2, 2019)
4.16
Amendment No. 3 to Series 2018-VF1 Indenture Supplement, dated as of March 11, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, New Residential Mortgage LLC, NewRez LLC d/b/a Shellpoint Mortgage Servicing, JPMorgan Chase Bank, N.A. and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed March 15, 2019)
4.17
Third Amended and Restated Indenture, dated as of July 25, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, PHH Mortgage Corporation, HLSS Holdings, LLC, New Residential Mortgage LLC, Newrez LLC, d/b/a Shellpoint Mortgage Servicing and Credit Suisse AG, New York Branch (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-K, filed July 26, 2019)
4.18
Series 2019-T1 Indenture Supplement, dated as of July 25, 2019, to the Third Amended and Restated Indenture, dated as of July 25, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, PHH Mortgage Corporation, HLSS Holdings, LLC, New Residential Mortgage LLC, Newrez LLC d/b/a Shellpoint Mortgage Servicing, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.2 to New Residential Investment Corp.’s Form 8-K, filed July 26, 2019)
4.19
Series 2019-T2 Indenture Supplement, dated as of August 15, 2019, to the Third Amended and Restated Indenture, dated as of July 25, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, PHH Mortgage Corporation, HLSS Holdings, LLC, New Residential Mortgage LLC, Newrez LLC d/b/a Shellpoint Mortgage Servicing, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-K, filed August 16, 2019)
4.20
Series 2019-T3 Indenture Supplement, dated as of September 20, 2019, to the Third Amended and Restated Indenture, dated as of July 25, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, PHH Mortgage Corporation, HLSS Holdings, LLC, New Residential Mortgage LLC, Newrez LLC d/b/a Shellpoint Mortgage Servicing, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-K, filed September 20, 2019)
4.21
Series 2019-T4 Indenture Supplement, dated as of October 15, 2019, to the Third Amended and Restated Indenture, dated as of July 25, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, PHH Mortgage Corporation, HLSS Holdings, LLC, New Residential Mortgage LLC, Newrez LLC d/b/a Shellpoint Mortgage Servicing, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-K, filed October 18, 2019)
4.22
Series 2019-T5 Indenture Supplement, dated as of October 31, 2019, to the Third Amended and Restated Indenture, dated as of July 25, 2019, by and among NRZ Advance Receivables Trust 2015-ON1, Deutsche Bank National Trust Company, PHH Mortgage Corporation, HLSS Holdings, LLC, New Residential Mortgage LLC, Newrez LLC d/b/a Shellpoint Mortgage Servicing, Credit Suisse AG, New York Branch and New Residential Investment Corp. (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Form 8-K, filed November 6, 2019)
4.23
Form of Debt Securities Indenture (including Form of Debt Security) (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Registration Statement on Form S-3, filed May 16, 2014)
4.24
Indenture, dated as of September 16, 2020, between New Residential Investment Corp. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed September 16, 2020)
167

Exhibit NumberExhibit Description
4.25
Description of Securities Registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.24 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on February 16, 2021)
10.1
Third Amended and Restated Management and Advisory Agreement, dated as of May 7, 2015, by and between New Residential Investment Corp. and FIG LLC (incorporated by reference to Exhibit 10.4 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)
10.2
Form of Indemnification Agreement by and between New Residential Investment Corp. and its directors and officers (incorporated by reference to Exhibit 10.2 to Amendment No. 3 to New Residential Investment Corp.’s Registration Statement on Form 10, filed March 27, 2013)
10.3
New Residential Investment Corp. Nonqualified Stock Option and Incentive Award Plan, adopted as of April 29, 2013 (incorporated by reference to Exhibit 10.1 to New Residential Investment Corp.’s Current Report on Form 8-K, filed May 3, 2013)
10.4
Amended and Restated New Residential Investment Corp. Nonqualified Stock Option and Incentive Plan, adopted as of November 4, 2014 (incorporated by reference to Exhibit 10.6 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014)
10.5
Investment Guidelines (incorporated by reference to Exhibit 10.4 to Amendment No. 4 to New Residential Investment Corp.’s Registration Statement on Form 10, filed April 9, 2013)
10.6
Excess Servicing Spread Sale and Assignment Agreement, dated as of December 8, 2011, by and between Nationstar Mortgage LLC and NIC MSR I LLC (incorporated by reference to Exhibit 10.5 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011)
10.7
Excess Spread Refinanced Loan Replacement Agreement, dated as of December 8, 2011, by and between Nationstar Mortgage LLC and NIC MSR I LLC (incorporated by reference to Exhibit 10.6 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011)
10.8
Future Spread Agreement for FHLMC Mortgage Loans, dated as of May 13, 2012, by and between Nationstar Mortgage LLC and NIC MSR IV LLC (incorporated by reference to Exhibit 10.4 to Drive Shack Inc.’s Current Report on Form 8-K, filed May 15, 2012)
10.9
Future Spread Agreement for FNMA Mortgage Loans, dated as of May 13, 2012, by and between Nationstar Mortgage LLC and NIC MSR V LLC (incorporated by reference to Exhibit 10.2 to Drive Shack Inc.’s Current Report on Form 8-K, filed May 15, 2012)
10.10
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of May 13, 2012, by and between Nationstar Mortgage LLC and NIC MSR VI LLC (incorporated by reference to Exhibit 10.6 to Drive Shack Inc.’s Current Report on Form 8-K, filed May 15, 2012)
10.11
Future Spread Agreement for GNMA Mortgage Loans, dated as of May 13, 2012, by and between Nationstar Mortgage LLC and NIC MSR VII, LLC (incorporated by reference to Exhibit 10.8 to Drive Shack Inc.’s Current Report on Form 8-K, filed May 15, 2012)
10.12
Current Excess Servicing Spread Acquisition Agreement for FHLMC Mortgage Loans, dated as of May 31, 2012, by and between Nationstar Mortgage LLC and NIC MSR III LLC (incorporated by reference to Exhibit 10.1 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 6, 2012)


Exhibit NumberExhibit Description
10.13
Future Spread Agreement for FHLMC Mortgage Loans, dated as of May 31, 2012, by and between Nationstar Mortgage LLC and NIC MSR III LLC (incorporated by reference to Exhibit 10.2 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 6, 2012)
10.14
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for FNMA Mortgage Loans, dated as of June 7, 2012, by and between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by reference to Exhibit 10.1 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 7, 2012)
10.15
Amended and Restated Future Spread Agreement for FNMA Mortgage Loans, dated as of June 7, 2012, by and between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by reference to Exhibit 10.2 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 7, 2012)
10.16
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for FHLMC Mortgage Loans, dated as of June 7, 2012, by and between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by reference to Exhibit 10.3 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 7, 2012)
168

Exhibit NumberExhibit Description
10.17
Amended and Restated Future Spread Agreement for FHLMC Mortgage Loans, dated as of June 7, 2012, by and between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by reference to Exhibit 10.4 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 7, 2012)
10.18
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of June 7, 2012, by and between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by reference to Exhibit 10.5 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 7, 2012)
10.19
Amended and Restated Future Spread Agreement for Non-Agency Mortgage Loans, dated as of June 7, 2012, by and between Nationstar Mortgage LLC and NIC MSR II LLC (incorporated by reference to Exhibit 10.6 to Drive Shack Inc.’s Current Report on Form 8-K, filed June 7, 2012)
10.20
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for FNMA Mortgage Loans, dated as of June 28, 2012, by and between Nationstar Mortgage LLC and NIC MSR V LLC (incorporated by reference to Exhibit 10.1 to Drive Shack Inc.’s Current Report on Form 8-K, filed July 5, 2012)
10.21
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for FHLMC Mortgage Loans, dated as of June 28, 2012, by and between Nationstar Mortgage LLC and NIC MSR IV LLC (incorporated by reference to Exhibit 10.2 to Drive Shack Inc.’s Current Report on Form 8-K, filed July 5, 2012)
10.22
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of June 28, 2012, by and between Nationstar Mortgage LLC and NIC MSR VI LLC (incorporated by reference to Exhibit 10.3 to Drive Shack Inc.’s Current Report on Form 8-K, filed July 5, 2012)
10.23
Amended and Restated Current Excess Servicing Spread Acquisition Agreement for GNMA Mortgage Loans, dated as of June 28, 2012, by and between Nationstar Mortgage LLC and NIC MSR VII LLC (incorporated by reference to Exhibit 10.4 to Drive Shack Inc.’s Current Report on Form 8-K, filed July 5, 2012)
10.24
Current Excess Servicing Spread Acquisition Agreement for GNMA Mortgage Loans, dated as of December 31, 2012, by and between Nationstar Mortgage LLC and MSR VIII LLC (incorporated by reference to Exhibit 10.35 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.25
Future Spread Agreement for GNMA Mortgage Loans, dated as of December 31, 2012, by and between Nationstar Mortgage LLC and MSR VIII LLC (incorporated by reference to Exhibit 10.36 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.26
Current Excess Servicing Spread Acquisition Agreement for FHLMC Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR IX LLC (incorporated by reference to Exhibit 10.37 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.27
Future Spread Agreement for FHLMC Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR IX LLC (incorporated by reference to Exhibit 10.38 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.28
Current Excess Servicing Spread Acquisition Agreement for FNMA Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR X LLC (incorporated by reference to Exhibit 10.39 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.29
Future Spread Agreement for FNMA Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR X LLC (incorporated by reference to Exhibit 10.40 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)


Exhibit NumberExhibit Description
10.30
Current Excess Servicing Spread Acquisition Agreement for GNMA Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR XI LLC (incorporated by reference to Exhibit 10.41 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.31
Future Spread Agreement for GNMA Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR XI LLC (incorporated by reference to Exhibit 10.42 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.32
Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR XII LLC (incorporated by reference to Exhibit 10.43 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.33
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR XII LLC (incorporated by reference to Exhibit 10.44 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
169

Exhibit NumberExhibit Description
10.34
Current Excess Servicing Spread Acquisition Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR XIII LLC (incorporated by reference to Exhibit 10.45 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.35
Future Spread Agreement for Non-Agency Mortgage Loans, dated as of January 6, 2013, by and between Nationstar Mortgage LLC and MSR XIII LLC (incorporated by reference to Exhibit 10.46 to Drive Shack Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012)
10.36
Interim Servicing Agreement, dated as of April 1, 2013, by and among the Interim Servicers listed therein, HSBC Finance Corporation, as Interim Servicer Representative, HSBC Bank USA, National Association, SpringCastle America, LLC, SpringCastle Credit, LLC, SpringCastle Finance, LLC, Wilmington Trust, National Association, as Loan Trustee, and SpringCastle Finance LLC, as Owner Representative (incorporated by reference to Exhibit 10.35 to Amendment No. 4 to New Residential Investment Corp.’s Registration Statement on Form 10, filed April 9, 2013)
10.37
Second Amended and Restated Limited Liability Company Agreement of SpringCastle Acquisition LLC, dated as of March 31, 2016 (incorporated by reference to Exhibit 10.37 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016)
10.38
Services Agreement, dated as of April 6, 2015, by and between HLSS Advances Acquisition Corp. and Home Loan Servicing Solutions, Ltd. (incorporated by reference to Exhibit 2.4 to New Residential Investment Corp.’s Current Report on Form 8-K, filed April 10, 2015)
10.39
Receivables Sale Agreement, dated as of August 28, 2015, by and among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC and NRZ Advance Facility Transferor 2015-ON1 LLC (incorporated by reference to Exhibit 10.47 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015)
10.40
Receivables Pooling Agreement, dated as of August 28, 2015, by and between NRZ Advance Facility Transferor 2015-ON1 LLC and NRZ Advance Receivables Trust 2015-ON1 (incorporated by reference to Exhibit 10.48 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015)
10.41#
Master Agreement, dated as July 23, 2017, by and among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC and New Residential Mortgage LLC (incorporated by reference to Exhibit 10.41 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017)
10.42
Amendment No. 1 to Master Agreement, dated as of October 12, 2017, by and among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC and New Residential Mortgage LLC (incorporated by reference to Exhibit 10.42 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017)
10.43#
Transfer Agreement, dated as of July 23, 2017, by and among Ocwen Loan Servicing, LLC, New Residential Mortgage LLC, Ocwen Financial Corporation and New Residential Investment Corp.

(incorporated by reference to Exhibit 10.43 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017)
10.44#
Amendment No. 1 to the Transfer Agreement, dated January 18, 2018, by and among Ocwen Loan Servicing, LLC, New Residential Mortgage LLC, Ocwen Financial Corporation and New Residential Investment Corp. (incorporated by reference to Exhibit 10.44 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018)
10.45#
Subservicing Agreement, dated as of July 23, 2017, by and between New Residential Mortgage LLC and Ocwen Loan Servicing, LLC (incorporated by reference to Exhibit 10.44 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017)
10.45#10.46#
Amendment No. 1 to Subservicing Agreement, dated as of August 17, 2018, by and between New Residential Mortgage LLC and Ocwen Loan Servicing, LLC (incorporated by reference to Exhibit 10.46 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018)
10.47*
Amendment No. 2 to Subservicing Agreement, dated as of October 5, 2020, by and between New Residential Mortgage LLC and PHH Mortgage Corporation (as successor by merger to Ocwen Loan Servicing, LLC) (incorporated by reference to Exhibit 10.47 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.48#
Cooperative Brokerage Agreement, dated as of August 28, 2017, by and among REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp.
(incorporated by reference to Exhibit 10.45 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017)


170

Exhibit NumberExhibit Description
10.49#
First Amendment to Cooperative Brokerage Agreement, dated as of November 16, 2017, by and among REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp. (incorporated by reference to Exhibit NumberExhibit Description10.46 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on February 14, 2018)
10.46#10.50#
Second Amendment to Cooperative Brokerage Agreement, dated as of January 18, 2018, by and among REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp. (incorporated by reference to Exhibit 10.47 to New Residential Investment Corp.’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on February 14, 2018)
10.51
Third Amendment to Cooperative Brokerage Agreement, dated as of March 23, 2018, by and among REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp. (incorporated by reference to Exhibit 10.49 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018)
10.52
Fourth Amendment to Cooperative Brokerage Agreement, dated as of September 11, 2018, by and among REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and New Residential Sales Corp. (incorporated by reference to Exhibit 10.51 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018)
10.53#
Letter Agreement, dated as of August 28, 2017, by and among New Residential Investment Corp., New Residential Mortgage LLC, REALHome Services and Solutions, Inc., REALHome Services and Solutions - CT, Inc. and Altisource Solutions S.a.r.l. (incorporated by reference to Exhibit 10.46 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017)
10.54#
New RMSR Agreement, dated as of January 18, 2018, by and among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC, and New Residential Mortgage LLC (incorporated by reference to Exhibit 10.51 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018)
10.55#
Amendment No. 1 to New RMSR Agreement, dated as of August 17, 2018, by and among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC, and New Residential Mortgage LLC (incorporated by reference to Exhibit 10.54 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018)
10.56*
Amendment No. 2 to New RMSR Agreement, dated as of October 5, 2020, by and among PHH Mortgage Corporation (as successor by merger to Ocwen Loan Servicing, LLC), HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC, and New Residential Mortgage LLC (incorporated by reference to Exhibit 10.56 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.57#
Subservicing Agreement, dated as of August 17, 2018, by and between New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing and Ocwen Loan Servicing, LLC (incorporated by reference to Exhibit 10.55 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018)
10.58*
Amendment No. 1 to Subservicing Agreement, dated as of October 5, 2020, by and between Newrez, LLC (as successor-in-interest to New Penn Financial, LLC) d/b/a Shellpoint Mortgage Servicing and PHH Mortgage Corporation (as successor by merger to Ocwen Loan Servicing, LLC) (incorporated by reference to Exhibit 10.58 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.59
Call Rights Letter Agreement, dated as of March 31, 2020, between New Residential Investment Corp. and Fortress Credit Opportunities V Advisors LLC (incorporated by reference to Exhibit 10.56 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020)
10.60
Senior Secured Term Loan Facility Agreement, dated as of May 19, 2020, among New Residential Investment Corp., as Parent and the Borrower, and Certain Subsidiaries of New Residential Investment Corp., as Subsidiary Guarantors, the Lenders Party thereto and Cortland Capital Market Services LLC, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.60 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.61
Pledge and Security Agreement, dated as of May 19, 2020, among each of the Pledgors Party thereto and Cortland Capital Market Services LLC, as Collateral Agent (incorporated by reference to Exhibit 10.61 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
171

Exhibit NumberExhibit Description
10.62
Form of Common Stock Purchase Warrant No. S1, dated May 19, 2020, between New Residential Investment Corp. and Canyon Finance (Cayman) Limited or its permitted assigns (incorporated by reference to Exhibit 10.62 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.63
Form of Common Stock Purchase Warrant No. S2, dated May 19, 2020, between New Residential Investment Corp. and Canyon Finance (Cayman) Limited or its permitted assigns (incorporated by reference to Exhibit 10.63 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.64
Form of Common Stock Purchase Warrant No. S1, dated May 27, 2020, between New Residential Investment Corp. and CF NRS-E LLC or its permitted assigns (incorporated by reference to Exhibit 10.64 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.65
Form of Common Stock Purchase Warrant No. S2, dated May 27, 2020, between New Residential Investment Corp. and CF NRS-E LLC or its permitted assigns (incorporated by reference to Exhibit 10.65 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
10.66
Registration Rights Agreement, dated May 19, 2020, by and among New Residential Investment Corp. and the Investors set forth on Schedule 1 thereto (incorporated by reference to Exhibit 10.66 to New Residential Investment Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020)
21.1
List of Subsidiaries of New Residential Investment Corp.
23.1
Consent of Ernst & Young LLP, independent registered public accounting firm.
31.1
Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS101XBRL Instance DocumentThe following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements
101.SCH104 Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Documentand contained in Exhibit 101)
#
†Schedules and exhibits may have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
#Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
*Portions of this exhibit have been omitted.

The following second amended and restated limited liability company agreements of the Consumer Loan Companies are substantially identical in all material respects, except as to the parties thereto and the initial capital contributions required under each agreement, to the Second Amended and Restated Limited Liability Company Agreement of SpringCastle Acquisition LLC that is filed as Exhibit 10.37 hereto and are being omitted in reliance on Instruction 2 to Item 601 of Regulation S-K:
 
•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.

172



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
  
NEW RESIDENTIAL INVESTMENT CORP.
NEW RESIDENTIAL INVESTMENT CORP.
By:
By:/s/ Michael Nierenberg
Michael Nierenberg
Chief Executive Officer and President
(Principal Executive Officer)
November 1, 20174, 2021
By:/s/ Nicola Santoro, Jr.
Nicola Santoro, Jr.
Chief Financial Officer and Treasurer
(Principal Financial Officer)
November 1, 20174, 2021
By:/s/ Jonathan R. Brown
Jonathan R. Brown
Chief Accounting Officer
(Principal Accounting Officer)
November 1, 2017


165173