RITHM CAPITAL CORP. 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 endedSeptember 30, 2021 compared to the immediately preceding prior quarter endedJune 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 endedDecember 31, 2020 .
As of
We have elected to be treated as a REIT for
OUR MANAGER
We are externally managed by an affiliate of
STRATEGIC INVESTMENTS AND ACQUISITIONS
OnApril 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. OnAugust 23, 2021 , we completed the acquisition of all of the outstanding equity interests of Caliber fromLSF 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 toSeptember 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. 68 --------------------------------------------------------------------------------
CAPITAL ACTIVITIES
OnSeptember 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 onSeptember 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. OnSeptember 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 theU.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. TheU.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% atSeptember 30, 2021 from 5.9% atJune 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 theFederal 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 theFederal 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. TheU.S. economic outlook for the remainder of the year continues to be uncertain and still largely dependent on the course of COVID-19. While theFDA's first fully approved COVID-19 vaccine in lateAugust 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
The following table summarizes theU.S. gross domestic product estimates annualized rate by quarter: Three Months Ended September 30, June 30, March 31, 2021 2021 2021 December 31, 2020 September 30, 2020 Real GDP 2.0 % 6.7 % 6.3 % 4.3 % 33.4 %
The following table summarizes the
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September 30, June 30, March 31, September 30,
2021 2021 2021 December 31, 2020 2020
Unemployment rate 4.8 % 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, June 30, March 31, December 31, September 30,
2021 2021 2021 2020 2020
10-year U.S. Treasury rate 1.6 % 1.5 % 1.7 % 0.9 % 0.7 %
30-year fixed mortgage rate 2.9 % 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 ofSeptember 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 Origination Residential Securities and Loans MSR Related Total Servicing Real Estate Residential Origination Servicing Investments and Origination Securities Mortgage Loans Consumer Loans Corporate TotalSeptember 30, 2021 Investments$ 11,714,006 $ 4,848,688 $ 3,017,963 $ 19,580,657 $
9,973,795
768,301 102,825 321,924 1,193,050 171,532 53 1,778 265 1,366,678
Restricted cash 35,284 87,969 29,525 152,778 15,704 1,457 24,806 - 194,745
Other assets 1,484,399 2,582,560 2,072,971 6,139,930 368,724 131,996 38,987 272,906 6,952,543
Goodwill 11,836 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
583,220 2,389,688 108,326 3,081,234 (6,108) 182,653 746 167,551 3,426,076
Total liabilities 11,973,289 5,591,263 3,887,431 21,451,983 9,657,460 2,575,158 500,415 791,986 34,977,002
Total equity 2,040,537 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 subsidiaries 16,134 - 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
-$ 103,956 $ 103,956 $ - $ - $ - $ -$ 103,956 Operating Investments Origination For the three months endedSeptember 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 endedJune 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 inAugust 2021 . Pull-through adjusted lock volume was$31.7 billion , compared to$20.5 billion in the prior quarter. During the three months endedSeptember 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 endedSeptember 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") andAvenue 365 Lender Services, LLC ("Avenue 365"). E Street offers appraisal valuation services and Avenue 365 provides title insurance and settlement services toNewrez and Caliber. 71 --------------------------------------------------------------------------------
The following table provides loan production by channel and product:
Unpaid Principal Balance
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
(in millions) 2021 % of Total June 30, 2021 % of Total 2021 % of Total 2020 % of Total QoQ Change YoY Change
Production by Channel
Direct to Consumer $ 6,425 19 % $ 6,404 27 % $ 18,502 22 % $ 8,571 23 % $ 21 $ 9,931
Retail / Joint Venture 5,556 16 % 1,007 4 % 7,613 9 % 2,789 7 % 4,549 4,824
Wholesale 4,476 13 % 2,413 10 % 9,561 11 % 4,893 13 % 2,063 4,668
Correspondent 18,017 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
Government 8,872 26 % 5,632 24 % 21,978 26 % 12,709 34 % 3,240 9,269
Non-QM 184 1 % 63 - % 247 - % 365 1 % 121 (118)
Non-Agency 602 2 % 120 1 % 860 1 % 294 1 % 482 566
Other 107 - % 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
% Purchase 48 % 36 % 38 % 30 %
% Refinance 52 % 64 % 62 % 70 %
The following table provides information regarding Gain on Originated Mortgage
Loans, Held-for-Sale, Net:
Three Months Ended Nine Months Ended
(dollars in thousands) September 30, 2021 June 30, 2021 September 30, 2021 September 30, 2020 QoQ Change YoY Change
Gain on originated mortgage loans,
held-for-sale, net(A)(B)(C)(D) $ 510,740 $ 268,539 $ 1,163,702 $ 885,730
Pull through adjusted lock volume $ 31,731,617
79,135,350 $ 44,044,241 Gain on originated mortgage loans, as a percentage of pull through adjusted lock volume, by channel: Direct to Consumer 3.99 % 3.83 % 4.02 % 4.44 % Retail / Joint Venture 3.80 % 4.81 % 4.02 % 3.70 % Wholesale 1.04 % 0.95 % 1.21 % 2.29 % Correspondent 0.32 % 0.25 % 0.30 % 0.66 % Total gain on originated mortgage loans, as a percentage of pull through adjusted lock volume 1.61 % 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 endedSeptember 30, 2021 andJune 30, 2021 , respectively. Includes loan origination fees of$1,775.7 million and$953.1 million for the nine months endedSeptember 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 endedSeptember 30, 2021 andJune 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 endedSeptember 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 endedSeptember 30, 2021 compared to the three months endedJune 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 endedSeptember 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 ofSeptember 30, 2021 , the performing loan servicing division (Newrez and Caliber) serviced$378.8 billion UPB of loans andShellpoint Mortgage Servicing serviced$97.0 billion UPB of loans, for a total servicing portfolio of$475.8 billion UPB, representing a 56% increase fromJune 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 ofSeptember 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
September 30,
(in millions) September 30, 2021 June 30, 2021 2020 QoQ Change YoY Change
Performing Servicing
MSR Assets $ 368,716 $ 207,881 $ 185,273 $ 160,835 $ 183,443
Residential Whole Loans 9,119 6,301 2,975 2,818 6,144
Third Party 954 - - 954 954
Total Performing Servicing 378,789 214,182 188,248 164,607 190,541
Special Servicing
MSR Assets 16,450 13,866 14,566 2,584 1,884
Residential Whole Loans 5,779 1,450 7,258 4,329 (1,479)
Third Party 74,814 76,409 77,131 (1,595) (2,317)
Total Special Servicing 97,043 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 Party 12,319 13,155 19,216 (836) (6,897)
Total Agency Servicing 282,149 171,003 162,771 111,146 119,378
Government-insured Servicing
MSR Assets 105,976 58,604 55,894 47,372 50,082
Residential Whole Loans - - - - -
Third Party - - 1,342 - (1,342)
Total Government Servicing 105,976 58,604 57,236 47,372 48,740
Non-Agency (Private Label) Servicing
MSR Assets 9,360 5,295 390 4,065 8,970
Residential Whole Loans 14,898 7,751 10,233 7,147 4,665
Third Party 63,449 63,254 56,573 195 6,876
Total Non-Agency (Private Label) Servicing 87,707 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 Ended Nine Months Ended
September 30, September 30, September 30,
(in thousands) 2021 June 30, 2021 2021 2020 QoQ Change YoY Change
Base Servicing Fees
MSR Assets $ 174,220 $ 143,999
11,281 1,163 13,518 10,938 10,118 2,580
Third Party 24,245 25,408 77,051 83,468 (1,163) (6,417)
Total Base Servicing Fees
$ 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 fees 14,822 11,519 37,330 30,623 3,303 6,707 Boarding fees 2,425 2,510 6,872 8,580 (85) (1,708) Other fees 6,829 7,516 20,056 11,475 (687) 8,581 Total Other Fees(A)$ 47,774 $ 41,894
Total Servicing Fees$ 257,520 $ 212,464
(A)Includes other fees earned from third parties of
MSR Related Investments
MSRs and MSR Financing Receivables
As ofSeptember 30, 2021 , we had$6.6 billion carrying value of MSRs and MSR Financing Receivables. As ofSeptember 30, 2021 , our Full and Excess MSR portfolio increased to$635 billion UPB from$536 billion UPB as ofDecember 31, 2020 . Full MSRs as ofSeptember 30, 2021 increased to$550 billion from$435 billion UPB as ofDecember 31, 2020 . Excess MSRs as ofSeptember 30, 2021 decreased to$85 billion UPB from$101 billion as ofDecember 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 ofSeptember 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 byNewrez 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 ofSeptember 30, 2021 . (dollars in millions) Current UPB Weighted Average MSR (bps) Carrying Value GSE$ 374,945.6 28 bps$ 4,273.4 Non-Agency 68,903.6 48 966.1 Ginnie Mae 105,975.4 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 ofSeptember 30, 2021 (dollars in thousands): Collateral Characteristics Three Month Three Month Three Month Three Month Current Carrying Current Principal Average Loan Age Adjustable Rate Average Average Average Average Recapture Amount Balance Number of Loans WA FICO Score(A) WA Coupon WA Maturity (months) (months) Mortgage %(B) CPR(C) CRR(D) CDR(E) 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-Agency 966,051 68,903,562 575,219 639 4.3 % 293 180 10.9 % 13.3 % 12.0 % 1.5 % 4.0 %Ginnie Mae 1,325,840 105,975,422 492,986 698 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 Delinquency 60 Delinquency 90+ Real Estate Days(F) Days(F) Days(F) Loans in Foreclosure Owned Loans in Bankruptcy GSE 0.8 % 0.2 % 1.9 % 0.3 % - % 0.2 % Non-Agency 6.5 % 2.0 % 5.1 % 5.5 % 0.9 % 2.3 % Ginnie Mae 2.2 % 0.7 % 3.2 % 0.3 % - % 0.4 % Total 1.8 % 0.5 % 2.5 % 0.9 % 0.1 % 0.5 % (A)TheWA 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 --------------------------------------------------------------------------------
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
Weighted
Current UPB Weighted Average Average Excess Carrying Value
(billions) MSR (bps) MSR (bps) Interest in Excess MSR (%) (millions)
Agency $ 28.4 29 bps 21 bps 32.5% - 66.7% $ 139.3
Non-Agency(B) 32.2 35 15 33.3% - 100% 130.9
Total/Weighted Average $ 60.6 32 bps 18 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)
Weighted
Average New Residential Investee New Residential
Current UPB Weighted Average Excess MSR Interest in Interest in Effective Ownership Investee Carrying
(billions) MSR (bps) (bps) Investee (%) Excess MSR (%) (%) Value (millions)
Agency $ 24.2 31 bps 21 bps 50.0 % 66.7 % 33.3 % $ 158.9
Total/Weighted Average $ 24.2 31 bps 21 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 Three Month Three Month Three Month Three Month
Carrying Current Principal Average Loan Age Adjustable Rate Average Average Average Average
Amount Balance Number of Loans WA FICO Score(A) WA Coupon WA Maturity (months) (months) Mortgage %(B) CPR(C) CRR(D) CDR(E) 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 Loans 56,982 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 Loans 23,924 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)
400,677 708 4.2 % 256 140 3.9 % 22.4 % 20.9 % 1.9 % 23.7 %
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Collateral Characteristics
Delinquency Real
Loans in Estate Loans in
30 Days(G) 60 Days(G) 90+ Days(G) Foreclosure Owned Bankruptcy
Agency
Original Pools 1.8 % 0.5 % 4.6 % 0.5 % 0.1 % 0.1 %
Recaptured Loans 1.2 % 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 Pools 10.8 % 6.2 % 4.7 % 5.5 % 0.3 % 1.3 %
Recaptured Loans 1.4 % 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 Current New Residential Three Month Three Month Three Month Three Month
Carrying Principal Effective Ownership Number Average Loan Adjustable Rate Average Average Average Average
Amount Balance (%) of Loans WA FICO Score(A) WA Coupon WA Maturity (months) Age (months) Mortgage %(B) CPR(C) CRR(D) CDR(E) 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 Loans 66,339 11,640,552 33.3 % 88,610 721 4.0 % 258 58 - % 26.3 % 24.3 % 3.0 % 44.4 %
Total/Weighted Average(G)
228,542 718 4.6 % 237 111 1.2 % 25.9 % 23.3 % 3.3 % 34.9 %
Collateral Characteristics
Delinquency Real
Loans in Estate Loans in
30 Days(F) 60 Days(F) 90+ Days(F) Foreclosure Owned BankruptcyAgency Original Pools 2.5 % 0.6 % 4.3 % 0.7 % 0.1 % 0.1 % Recaptured Loans 1.6 % 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)TheWA 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
Servicer Advances to
UPB of Underlying UPB of Underlying
Amortized Cost Carrying Residential Outstanding Residential Mortgage
Basis Value(A) Mortgage Loans Servicer Advances 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
Nine Months
Ended
September 30,
2021 Loan-to-Value ("LTV")(A) Cost of Funds(B)
Change in Fair Face Amount of
Weighted Average Weighted Average Life Value Recorded Secured Notes and
Discount Rate (Years)(C) in Other Income Bonds Payable Gross Net(D) Gross Net
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 advances 161,704
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
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a provider of various technology-enabled services to the mortgage and real
estate industries. As of
Agency RMBS
The following table summarizes our Agency RMBS portfolio as of
Gross Unrealized
Percentage of Outstanding
Outstanding Face Amortized Cost Total Amortized Carrying Weighted Average Repurchase
Asset Type Amount Basis Cost Basis Gains Losses Value(A) Count Life (Years) 3-Month CPR(B) Agreements
Agency RMBS $ 8,879,217 $ 9,161,405 100.0 % $ 6,799 $ (185,517) $ 8,982,687 41 6.6 13.2 % $ 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
Net Interest Spread(A)
Weighted Average Asset Yield 2.15 %
Weighted Average Funding Cost 0.16 %
Net Interest Spread 1.99 %
(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. AtSeptember 30, 2021 andDecember 31, 2020 , the Company pledged Agency RMBS with a carrying value of approximately$9.3 billion and$13.8 billion , respectively, as collateral for borrowings under repurchase agreements. To the extent available on desirable terms, we expect to continue to finance our acquisitions of Agency RMBS with repurchase agreement financing. See Note 11 to our Consolidated Financial Statements for further information regarding financing of our Agency RMBS.
Non-Agency RMBS
The following table summarizes our Non-Agency RMBS portfolio as ofSeptember 30, 2021 (dollars in thousands): Gross Unrealized Outstanding Outstanding Face Amortized Cost Carrying Repurchase Asset Type Amount Basis Gains Losses Value(A) Agreements Non-Agency RMBS$ 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
Non-Agency RMBS Characteristics(A)
Average Percentage of
Minimum Outstanding Face Amortized Cost Total Amortized Weighted Average Weighted Average
Vintage(B) Rating(C) Number of Securities Amount Basis Cost Basis Carrying Value Principal Subordination(D) Excess Spread(E) Life (Years) Coupon(F)
Pre-2008 NR 126 $ 457,520 $ 18,393 2.0 % $ 23,590 - % - % 3.8 5.5 %
2008 and later BBB- 466 16,152,892 899,744 98.0 % 962,657 24.4 % 0.2 % 3.4 2.7 %
Total/weighted average BBB- 592 $ 16,610,412 $ 918,137 100.0 % $ 986,247 23.8 % 0.2 % 3.4 2.7 %
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Collateral Characteristics(A)(G)
Cumulative Losses to
Vintage(B) Average Loan Age (years) Collateral Factor(H) 3-Month CPR(I) Delinquency(J) Date
Pre-2008 13.3 0.10 10.0 % 10.0 % 10.0 %
2008 and later 13.4 0.63 21.1 % 4.1 % 0.6 %
Total/weighted average 13.4 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
Net Interest Spread(A)
Weighted average asset yield 3.72 %
Weighted average funding cost 2.52 %
Net interest spread 1.20 %
(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. AtSeptember 30, 2021 andDecember 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
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
Refer to Note 16 for additional discussion regarding call rights and transactions with affiliates.
Residential Mortgage Loans
As ofSeptember 30, 2021 , we had approximately$14.5 billion outstanding face amount of residential mortgage loans (see below). These investments were financed with secured financing agreements with an aggregate face amount of approximately$12.9 billion and secured notes and bonds payable with an aggregate face amount of approximately$1.2 billion . We acquired these loans through open market purchases, through loan origination, as well as through the exercise of call rights and acquisitions.
The following table presents the total residential mortgage loans outstanding by
loan type at
Outstanding Face Carrying Loan Weighted Average Weighted Average Life
Amount Value Count Yield (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)
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 loans 160,098.0 146,370 1 4.8 % 5.6 Originated loans 11,403,519 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. 82 -------------------------------------------------------------------------------- (G)Performing loans are generally placed on nonaccrual status when principal or interest is 120 days or more past due. (H)As ofSeptember 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. AtSeptember 30, 2021 andDecember 31, 2020 , the Company pledged mortgage loans with a carrying value of approximately$13.8 billion and$4.5 billion , respectively, as collateral for borrowings under repurchase agreements. A portion of collateral for borrowings under repurchase agreements are subject to daily mark-to-market fluctuations and margin calls. A portion of collateral for borrowings under repurchase agreements is not subject to daily margin calls unless the collateral coverage percentage, a quotient expressed as a percentage equal to the current carrying value of outstanding debt divided by the market value of the underlying collateral, becomes greater than or equal to a collateral trigger. The difference between the collateral coverage percentage and the collateral trigger is referred to as a "margin holiday." See Note 11 to our Consolidated Financial Statements for further information regarding financing of our mortgage loans.
Other
Consumer Loans
The table below summarizes the collateral characteristics of the consumer loans, including those held in the Consumer Loan Companies and those acquired from the Consumer Loan Seller, as ofSeptember 30, 2021 (dollars in thousands): Collateral Characteristics Weighted Average Personal Original Average Unsecured Loans Personal FICO Weighted Adjustable Rate Average Loan Age Expected Delinquency 30 Delinquency 60 Delinquency 90+ 12-Month 12-Month UPB % Homeowner Loans % Number of Loans Score(A) Average Coupon Loan % (months) Life (Years) Days(B) Days(B) Days(B) CRR(C) CDR(D) Consumer loans$ 486,350 58.9 % 41.1 % 75,391 688 17.6 % 12.9 % 200 3.2 1.1 % 0.8 % 1.2 % 22.6 % 4.4 % (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. We have financed our investments in consumer loans with securitized non-recourse long-term notes with a stated maturity date ofMay 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 ofSeptember 30, 2021 our SFR portfolio consisted of approximately 1,882 units with an aggregate carrying value of$403.7 million , up from 1,155 units with an aggregate carrying value of$227.6 million as ofJune 30, 2021 . During the three months endedSeptember 30, 2021 andJune 30, 2021 , we acquired approximately 727 and530 SFR units, respectively.
TAXES
We have elected to be treated as a REIT forU.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.
AtSeptember 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 months and nine months endedSeptember 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 the fair value of MSRs, loans, and swaps held within taxable entities as well as income in our servicing and origination business segments.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our 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 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 ofSeptember 30, 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 endedDecember 31, 2020 . The outbreak of the novel coronavirus pandemic around the globe continues to adversely impact theU.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 theU.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 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 ofSeptember 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 ofSeptember 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
See Note 1 to our Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table summarizes the changes in our results of operations for the
three months ended
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months ended
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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, net 203,022 (29,125) 747,099 (341,336) 232,147 1,088,435
Interest income 190,633 201,762 593,342 622,224 (11,129) (28,882)
Gain on originated mortgage loans,
held-for-sale, net 566,761 286,885 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 expense 129,928 106,539 355,372 463,786 23,389 (108,414)
General and administrative expenses 245,071 205,668 647,244 546,939 39,403 100,305
Compensation and benefits 324,545 194,730 717,919 412,402 129,815 305,517
Management fee to affiliate 24,315 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 investments 11,112 229,900 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), net 59,266 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 Taxes 202,240 144,649 746,484 (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 subsidiaries 9,001 10,053 28,448 34,118 (1,052) (5,670)
Dividends on preferred stock 15,533 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
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Servicing Revenue, Net
Servicing Revenue, Net consists of the following:
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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 fees 13,692 44,602 98,887 140,538 (30,910) (41,651)
Servicing fee revenue and fees 398,645 388,858 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
(A)The following table summarizes the components of servicing revenue, net related to changes in valuation inputs and assumptions:
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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 factors 6,497 (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 September 30, September 30, (dollars in millions) 2021 June 30, 2021 2020 QoQ Change YoY Change GSE$ 374,945.6 $ 269,342.7 $ 329,633.7 $ 105,602.9 $ 45,311.9 Non-Agency 68,903.6 70,711.1 74,695.1 (1,807.5) (5,791.5) Ginnie Mae 105,975.4 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 ended
Servicing revenue, net increased$232.1 million primarily driven by (i) a$197.5 million net change from negative to positive mark-to-market adjustments, and (ii) a$10.5 million net decrease in realization of cash flows consisting of a$50.3 million decrease in the realization of cash flows related to MSRs held atJune 30, 2021 and a$39.8 million increase related to the acquisition of Caliber. The positive mark-to-market adjustments of$147.2 million for the three months endedSeptember 30, 2021 were primarily driven by changes in assumptions related to prepayment rates.
Nine months ended
Servicing revenue, net increased$1.09 billion primarily driven by (i) a$1.12 billion net change from negative to positive mark-to-market adjustments as a result of slower prepayment rates, lower delinquency rates, and a decrease in discount rates, and (ii) 86 -------------------------------------------------------------------------------- a$210.7 million decrease in realization of cash flows as a result of slower prepayment rates. The increase was partially offset by (iii) a$221.6 million decrease in servicing fee revenue and fees from portfolio runoff.
Interest Income
Three months ended
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 smaller 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 interest income at our corporate segment related to commercial loans with an affiliate of our manager.
Nine months ended
Interest income decreased$28.9 million year over year driven by (i) a$38.4 million decrease in interest income related to a 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 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 Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020
Direct to Consumer 3.99 % 3.83 % 4.02 % 4.44 %
Retail / Joint Venture 3.80 % 4.81 % 4.02 % 3.70 %
Wholesale 1.04 % 0.95 % 1.21 % 2.29 %
Correspondent 0.32 % 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 Ended Nine Months Ended
September 30, September 30, September 30,
(in millions) 2021 June 30, 2021 2021 2020 QoQ Change YoY Change
Production by Channel
Direct to Consumer $ 6,425 $ 6,404 $ 18,502 $ 8,571 $ 21 $ 9,931
Retail / Joint Venture 5,556 1,007 7,613 2,789 4,549 4,824
Wholesale 4,476 2,413 9,561 4,893 2,063 4,668
Correspondent 18,017 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
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 endedSeptember 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
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 ended
Interest expense increased by$23.4 million quarter over quarter primarily attributable to (i) a$24.9 million increase in interest expense attributable to the Origination segment (Newrez and Caliber), partially offset by (ii) a$4.3 million decrease in interest expense on a smaller bond portfolio owned during the third quarter of 2021 related to sales of agency bonds to fund the Caliber acquisition.
Nine months ended
Interest expense decreased$108.4 million year over year primarily attributable to (i) a$102.6 million decrease related to a smaller portfolio of bonds owned in 2021, (ii) a$19.3 million decrease in interest expense on our residential mortgage loans and consumer loans driven by decreases in interest rates and portfolio sizes, partially offset by (iii) a$13.5 million increase in interest expense related to our growing Origination business atNewrez and Caliber.
Management Fee to Affiliate
Three months ended
Management fee to affiliate increased
Nine months ended
Management fee to affiliate increased
88
--------------------------------------------------------------------------------General and Administrative Expenses
General and Administrative Expenses consists of the following:
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY Change
Legal and professional $ 29,419 $ 18,587 $ 66,225 $ 63,798 $ 10,832 $ 2,427
Loan origination 52,481 44,916 137,642 59,462 7,565 78,180
Occupancy 18,612 10,221 39,183 26,195 8,391 12,988
Subservicing 74,156 77,960 234,599 277,367 (3,804) (42,768)
Loan servicing 3,976 4,627 13,282 23,313 (651) (10,031)
Property and maintenance 19,331 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
$ 647,244 $ 546,939 $ 39,403 $
100,305
Three months ended
General and administrative expenses increased$39.4 million quarter over quarter, this increase was primarily attributable to the 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
General 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 growth in loan origination and servicing volumes which drove higher general and administrative expenses. For the nine months endedSeptember 30, 2021 , 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 ofSeptember 30, 2021 compared to$287.2 billion UPB of servicing volume as ofSeptember 30, 2020 . Compensation and Benefits
Three months ended
Compensation and benefits increased
Nine months ended
Compensation and benefits increased$305.5 million year over year largely due to continued growth in headcount within our operating companies. As ofSeptember 30, 2021 , headcount within our operating companies totaled 12,749 employees compared to 5,105 as ofSeptember 30, 2020 . The completion of the Caliber acquisition inAugust 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 Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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 securities 5,538 156,792 (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 instruments 45,389 (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 Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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
$ (13,666) $ (11,773) $ (626) $ (1,893)
Three months ended
The negative mark-to-market fair value adjustments during the three months endedSeptember 30, 2021 were mainly driven by increases in delinquency rates in our conventional, agency, and PLS excess mortgage servicing rights pools and reduced recapture rates, slightly offset by decreased prepayment speeds. The negative mark-to-market fair value adjustments during the three months endedJune 30, 2021 were mainly driven by increases in delinquency rates and reduced recapture rates. Additionally, decreased interest rates and increased prepayment speeds further drove the negative marks.
Nine months ended
The negative mark-to-market fair value adjustments during the nine months endedSeptember 30, 2021 were mainly driven by increases in delinquency rates in our conventional, agency, and PLS excess mortgage servicing rights pools and reduced recapture rates. This was partially offset by favorable changes in interest rates and prepayment speeds. The negative mark-to-market fair value adjustments during the nine months endedSeptember 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.
Change 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 Ended Nine Months Ended
June 30, September 30, September 30,
September 30, 2021 2021 2021 2020 QoQ Change YoY 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
90--------------------------------------------------------------------------------
Three months ended
The negative mark-to-market fair value adjustments during the three months endedSeptember 30, 2021 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 endedJune 30, 2021 were mainly driven by decreased interest rates and increased prepayment speeds.
Nine months ended
The positive mark-to-market fair value adjustments during the nine months endedSeptember 30, 2021 were mainly driven by favorable changes in interest rates and prepayment speeds. The negative mark-to market adjustments during the nine months endedSeptember 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 Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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
The negative mark-to-market adjustments during the three months endedSeptember 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 endedJune 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
The negative mark-to-market adjustments during the nine months ended
91
--------------------------------------------------------------------------------
mark-to-market adjustments. The positive mark-to-market adjustments during the
nine months ended September 30, 2020 were mainly driven by a decrease in the
discount rates that caused the fair value to increase.
Change in Fair Value of Real Estate and
Three months ended
Change 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 lower projected prepayments and credit default rates.
Nine months ended
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
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
Change in fair value of investments in residential mortgage loans increased
92
--------------------------------------------------------------------------------
economic outlook, partially offset by (ii) a
Change in Fair Value of Consumer Loans Held-for-Investment
Three months ended
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
Change in fair value of consumer loans decreased
Change in Fair Value of Derivative Instruments
Three months ended
Change in fair value of derivative instruments increased
Nine months ended
Change in fair value of derivative instruments increased
Gain (Loss) on Settlement of Investments, Net
Gain (Loss) on Settlement of Investments, Net consists of the following:
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY Change
Sale of real estate securities $ (63,809) $ (24,708) $ (89,500) $ (753,551) $ (39,101) $ 664,051
Sale of acquired residential
mortgage loans 66,807 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 REO 371 (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
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 93 -------------------------------------------------------------------------------- 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 atNewrez from the second quarter.
Nine months ended
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 Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 2021 2020 QoQ Change YoY 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 investments 10,546 (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 Gain 3,497 - 3,497 - 3,497 3,497
Rental and ancillary revenue 19,072 14,195 39,094 17,851 4,877 21,243
Property and maintenance revenue 28,755 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
Other income increased$29.2 million primarily due to (i) a$13.3 million decrease in provision for servicing losses atNewrez , (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
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 94 --------------------------------------------------------------------------------
contingent consideration accounted for at fair value, (vii) a
Provision (Reversal) for Credit Losses on Securities
Three months ended
The reversal for credit losses on securities increased
Nine months ended
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
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
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
Income tax expense increased
Nine months ended
Income tax expense increased$177.4 million . The tax benefit for the prior year primarily reflected deferred tax benefits resulting from changes in the fair value of loans and MSRs, partially offset by deferred tax expense generated from income in our servicing and origination business segments.
Noncontrolling Interests in Income (Loss) of Consolidated Subsidiaries
Three months ended
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 inAdvance Purchaser LLC during the third quarter.
Nine months ended
Noncontrolling interests in income of consolidated subsidiaries decreased by$5.7 million primarily attributable to (i) a$4.2 million decrease related 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 toAdvance Purchaser LLC , which we own an 89.3% interest in, and (iii) a$0.8 million increase from the Shelter JVs, driven by higher earnings from originations during 2021. 95 --------------------------------------------------------------------------------
Dividends on Preferred Stock
The table below summarizes preferred stock:
Dividends Declared Per Share and Amount(A)
Number of Shares Three Months Ended Nine Months Ended September 30 ,
Series September 30, 2021 June 30, 2021 September 30, 2020 September 30, 2021 June 30, 2021 2021 2020
Series A, 7.50% issued
July 2019 6,210 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 2019 11,300 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 2020 16,100 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 2021 18,600 - - 0.28 1,175 - - 0.28 1,175 - -
Total 52,210 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 amount accrued at
Three months ended
Dividends on preferred stock increased
Nine months ended
Dividends on preferred stock increased
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 are cash provided by operating activities (primarily income from servicing and 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 atSeptember 30, 2021 was$1,366.7 million . Our ability to utilize funds generated by the MSRs held in our servicer subsidiaries, NRM,Newrez , and Caliber, is subject to and limited by certain regulatory requirements, 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 ofSeptember 30, 2021 , approximately$1,166.4 million of our cash and cash equivalents were held at NRM,Newrez , and Caliber, of which$971.0 million were in excess of regulatory liquidity requirements. NRM,Newrez , and Caliber are expected to maintain compliance with applicable liquidity and net worth requirements throughout the year. Currently, our primary sources of financing are secured financing agreements and secured notes and bonds payable, 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 ofSeptember 30, 2021 , we had outstanding secured financing agreements with an aggregate face amount of approximately$22.8 billion to finance our investments. The financing of our entire RMBS portfolio, which generally has 30- to 90-day terms, is subject to margin calls. Under secured 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 96 -------------------------------------------------------------------------------- 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. During the term of the secured 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,$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 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 secured 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 secured 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 (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. 97 -------------------------------------------------------------------------------- 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, 2021 December 31, 2020
Collateral
Outstanding Face Weighted Average Weighted Average Amortized Cost Weighted Average
Debt Obligations/Collateral Amount Carrying Value(A) Final Stated Maturity(B) Funding Cost Life (Years) Outstanding Face Basis Carrying Value 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-25 2.01 % 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-22 0.16 % 0.1 8,876,431 9,158,455 9,321,370 6.6 12,682,427
Non-Agency RMBS(E) 723,486 723,486 Oct-21 to Dec-21 2.52 % 0.0 13,927,317 905,336 987,803 3.3 817,209
Real Estate Owned(G)(H) 160,512 160,513 Oct-21 to Sep-25 2.91 % 1.2 N/A 230,128 224,580 4.5 8,480
Total Secured Financing Agreements 22,763,086 22,759,985 1.31 % 0.5 17,547,680
Secured Notes and Bonds Payable Excess MSRs(I) 248,061 248,061 Aug-25 3.74 % 3.9 84,829,582 281,142 348,080 6.3 275,088 MSRs(J) 3,629,810 3,617,850 Mar-22 to Jul-26 3.69 % 3.2 531,851,913 6,029,066 6,477,289 6.1 2,691,791 Servicer Advance Investments(K) 381,286 380,420 Apr-22 to Dec-22 1.30 % 1.1 408,085 453,442 472,004 6.0 423,144 Servicer Advances(K) 2,347,819 2,342,335 Nov-21 to Sep-23 2.34 % 1.4 2,796,796 2,782,622 2,782,622 0.7 2,585,575 Residential Mortgage Loans(L) 1,170,838 1,162,080 Sep-22 to Jul-43 2.10 % 3.6 1,192,146 1,311,940 1,313,998 20.0 1,039,838 Consumer Loans(M) 492,999 497,346 Sep-37 2.04 % 3.6 485,966 496,573 547,548 3.3 628,759 Total Secured Notes and Bonds Payable 8,270,813 8,248,092 2.87 % 2.7
7,644,195
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 ofSeptember 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. 98 -------------------------------------------------------------------------------- (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 ofSAFT 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 inSeptember 2037 and$53.0 million UPB of Class B notes with a coupon of 2.7% and a stated maturity date inSeptember 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$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
Outstanding
Balance at Average Daily
September 30, Amount Maximum Amount Weighted Average
2021 Outstanding(A) Outstanding Daily Interest Rate
Secured Financing Agreements
Agency RMBS $ 8,956,064 $ 12,786,907 $ 18,667,907 0.19 %
Non-Agency RMBS 723,486 748,301 1,300,470 3.17 %
Residential mortgage loans 8,922,426 9,055,124 11,608,298 1.90 %
Real estate owned 6,006 9,923 24,133 2.65 %
Secured Notes and Bonds Payable
MSRs 366,360 215,328 716,360 3.39 % Servicer advances 744,193 643,959 928,259 1.94 % Residential mortgage loans 5,834 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.
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Average Daily Amount Outstanding(A)
Three Months Ended
September 30, September 30,
2021 June 30, 2021 December 31, 2020 2020
Secured Financing Agreements
Agency RMBS $ 10,098,123 $ 15,169,877 $ 13,833,811 $ 11,391,397
Non-Agency RMBS 715,802 724,014 806,260 447,824
Residential mortgage loans 4,879,365 4,622,809 4,552,293 3,655,906
Real estate owned 9,923 19,294 2,282 2,581
(A)Represents the average for the period the debt was outstanding.
Corporate Debt
On
InAugust 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 onMay 19, 2023 and are exercisable, in whole or in part, at any time or from time to time afterSeptember 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 ofSeptember 30, 2021 , the weighted average exercise price was$6.58 per share. OnSeptember 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 eachApril 15 andOctober 15 , commencing onApril 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 onOctober 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 afterOctober 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): Year Price 2022 103.125% 2023 101.563% 2024 and thereafter 100.000% Prior toOctober 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 Consolidated Financial Statements.
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Our debt obligations as ofSeptember 30, 2021 , as summarized in Note 11 to our 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 2022 1,432,049 6,338,673 7,770,722 2023 1,365,913 3,245,451 4,611,364 2024 750,000 952,951 1,702,951 2025 232,200 2,141,348 2,373,548 2026 and thereafter 569,976 812,466 1,382,442$ 4,350,138 $ 27,233,761 $ 31,583,899
(A)Includes secured notes and bonds payable of
The weighted average differences between the fair value of the assets and the face amount of available financing for the Agency RMBS repurchase agreements and Non-Agency RMBS repurchase agreements were 3.9% and 27%, respectively, and for residential mortgage loans and REO were 6% and 29%, respectively, during the nine months endedSeptember 30, 2021 .
Borrowing Capacity
The following table represents our borrowing capacity as ofSeptember 30, 2021 (in thousands): Borrowing Balance Available Debt Obligations/ Collateral Capacity Outstanding Financing(A) Secured Financing Agreements Residential mortgage loans and REO$ 4,379,092 $ 1,999,295 $ 2,379,797 New loan origination 21,103,010 11,834,240 9,268,770 Secured Notes and Bonds Payable Excess MSRs 286,380 248,061 38,319 MSRs 4,685,450 3,629,810 1,055,640 Servicer advances 4,554,990 2,729,105 1,825,885 Residential mortgage loans 200,000 105,825 94,175$ 35,208,922 $ 20,546,336 $ 14,662,586 (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.
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 ofSeptember 30, 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
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Dividends Declared per Share
Three Months Ended Nine Months Ended
Number of Shares September 30 , September 30 ,
Liquidation Issuance Carrying
Series September 30, 2021 December 31, 2020 Preference(A) Discount Value(B) 2021 2020 2021 2020
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 -
Total 52,210 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
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 , andSeptember 17, 2021 but excludingAugust 15, 2024 ,February 15, 2025 , andNovember 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 includingAugust 15, 2024 andFebruary 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 includingNovember 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 beforeAugust 15, 2024 , the Series C will not be redeemable beforeFebruary 15, 2025 , and the Series D will not be redeemable beforeNovember 15, 2026 except under certain limited circumstances intended to preserve our qualification as a REIT forU.S. federal income tax purposes and except upon the occurrence of a Change of Control (as defined in the Certificate of Designations). On or afterAugust 15, 2024 for the Series A and Series B,February 15, 2025 for the Series C, andNovember 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
OnFebruary 16, 2021 , we announced that our board of directors had authorized the repurchase of up to$200.0 million of our common stock throughDecember 31, 2021 . Repurchases may be made at any time and from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act, by means of one or more tender offers, or otherwise, in each case, as permitted by securities laws and other legal and contractual requirements. The amount and timing of the purchases will depend on a number of factors including the price and availability of our shares, trading volume, capital availability, our performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time. No share repurchases have been made as of the filing of this report. Repurchases may impact our financial results, including fees paid to our Manager. OnApril 14, 2021 , we priced our 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, 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. OnApril 16, 2021 , the underwriters exercised their option, in part, to purchase an additional 6,725,000 shares of common stock. The offering closed 102 -------------------------------------------------------------------------------- onApril 19, 2021 . To compensate the Manager for its successful efforts in raising capital for us, we granted options to the Manager relating to 5.2 million shares of New Residential's common stock at$10.10 per share. We used the net proceeds of approximately$512.0 million from the offering, along with cash on hand and other sources of liquidity, to finance the Caliber acquisition. OnMay 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 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 endedSeptember 30, 2021 . OnSeptember 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 onSeptember 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. OnSeptember 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.
As of
Held by the Manager
18,700,175
Issued to the Manager and subsequently assigned to certain of the Manager's employees
2,753,980
Issued to the independent directors 6,000 Total 21,460,155 Common Dividends We are organized and intend to conduct our operations to qualify as a REIT forU.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 forU.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our secured 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
June 30, 2020 July 2020 $ 0.10
September 30, 2020 October 2020 0.15
December 31, 2020 January 2021 0.20
March 31, 2021 April 2021 0.20
June 30, 2021 July 2021 0.20
September 30, 2021 October 2021 0.25
Cash Flow
Operating Activities
Net cash flows used in operating activities decreased approximately $2.6 billion
for the nine months ended September 30, 2021 as compared to the nine months
ended September 30, 2020 . Operating cash flows for the nine months ended
September 30, 2021 primarily consisted of proceeds from sales and principal
repayments of purchased residential mortgage loans, held-for-sale of $89.7
billion , servicing fees received of $1.1 billion , net recoveries of servicer
advances receivable of $303.8 million , and net interest income received of
$272.7 million . Operating cash outflows primarily consisted of purchases of
residential mortgage loans, held-for-sale of $5.8 billion , originations of $84.6
billion , management fees paid to the Manager of $69.4 million , income taxes paid
of $20.7 million , subservicing fees paid of $235.2 million and other outflows of
approximately $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 provided by (used in) investing activities were$2.8 billion for the nine months endedSeptember 30, 2021 . Investing activities consisted primarily of the acquisition of real estate securities, funding of servicer advances, the Caliber acquisition, net of proceeds from the sale of real estate securities, principal repayments from Servicer Advance Investments, MSRs, real estate securities, loans.
Financing Activities
Cash flows provided by (used in) financing activities were approximately$(1.6) billion during the nine months endedSeptember 30, 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$1.0 billion . As ofSeptember 30, 2021 , there was$11.4 billion in total outstanding unpaid principal balance of residential mortgage loans underlying such securitization trusts that represent off-balance sheet financings. We did not have any other off-balance sheet arrangements as ofSeptember 30, 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. 104 --------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of
In addition, we executed the following material contractual obligations during
the nine months ended
•Derivatives - as described in Note 10 to our Consolidated Financial Statements, we have altered the composition of our economic hedges during the period. •Debt obligations - as described in Note 11 to our Consolidated Financial Statements, we borrowed additional amounts.
See Notes 15 and 18 to our Consolidated Financial Statements included in this report for information regarding commitments and material contracts entered into subsequent toSeptember 30, 2021 , if any. As described in Note 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. In addition, the Consumer Loan Companies have invested in loans with an aggregate of$250.1 million of unfunded and available revolving credit privileges as ofSeptember 30, 2021 . However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at management's discretion.
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 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."
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