# Rithm Capital Corp. (RITM) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Rithm Capital Corp.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1556593/000155659322000008/nrz-20211231.htm
Accession: 0001556593-22-000008
Filing date: 2022-02-17
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RITM/
All MD&A years: /company/RITM/mda/
Next year: /company/RITM/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto, and with Part I, Item 1A, “Risk Factors.”

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

This section generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2020 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

GENERAL

New Residential is an investment manager with a vertically integrated mortgage platform. We seek to generate long-term value for our investors by using our investment expertise to identify, manage and invest 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/or 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.”

Our portfolio is currently composed of mortgage servicing related assets (including investments in operating entities consisting of servicing, origination, and related businesses), residential securities (and associated call rights), properties and loans, consumer loans, and mortgage loans. Within our portfolio, we target complementary assets that generate stable long-term cash flows and employ conservative capital structures in an effort to generate returns across different interest rate environments. Our investment approach and capital allocation decisions combine a focus on asset selection, relative value, and risk management, taking into consideration relevant macroeconomic factors. In our efforts to identify and invest in target assets, we compete with banks, other REITs, non-bank mortgage lenders and servicers, private equity firms, hedge funds, and other large financial services companies. In the face of this competition, the experience of members of our management team and dedicated investment professionals provided by our manager provide us with a competitive advantage when pursuing attractive investment opportunities.

Our investments in operating entities include our mortgage origination and servicing subsidiaries, Newrez and Caliber, and special servicing divisions, as well as investments in related businesses, such as Avenue 365 and eStreet, that provide services complementary to our origination and servicing businesses and our other portfolios of mortgage related assets. Our residential mortgage origination business sources and originates loans through four distinct channels: Direct to Consumer, Retail / Joint Venture, Wholesale, and Correspondent. Our servicing platforms offer our subsidiaries and third-party clients performing and special servicing capabilities. Within our operating entities, we also have a title company called Avenue 365 and an appraisal company called eStreet. We also have investments in Guardian and non-controlling interest in, and partnerships with, Covius Holdings, Inc. (collectively with its subsidiaries, “Covius”) and other entities that provide services that support the mortgage and housing industries. Lastly, the acquisition of Genesis in December 2021 is expected to further bolster and complement our existing business strategy by continuing to provide high-quality mortgage loans to developers of new construction, renovation and rental hold projects.

We seek to protect book value and the value of our assets by actively managing and hedging our portfolio. Diversification of our overall portfolio, including our portfolio assets and operating entities, and a variety of hedging strategies help contribute to book value stability. Both our portfolio composition (inclusive of long and short duration instruments and various operating businesses) and specific hedging instruments (including Agency MBS, interest rate swaps and others) are employed to mitigate

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book value volatility. We believe that the actions we have taken over the past number of years to diversify and grow our portfolio have allowed us to operate efficiently and perform dynamically across economic conditions.

We also seek to protect our assets and reduce the impact of prepayments on our MSRs and Excess MSR investments through recapture agreements with our subservicers and through our origination and servicing operations. Under these agreements, New Residential is generally entitled to the MSRs or a pro rata interest in the Excess MSRs on any initial or subsequent refinancing of loans relating to MSRs and Excess MSRs subserviced or serviced by PHH, LoanCare, Flagstar, Mr. Cooper, Valon, or SLS.

As of December 31, 2021, we had $39.7 billion in assets under management and 12,296 employees employed by our operating entities.

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

OUR MANAGER

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

On December 27, 2017, SoftBank Group Corp. (“SoftBank”) acquired Fortress and Fortress operates within SoftBank as an independent business headquartered in New York.

STRATEGIC INVESTMENTS AND ACQUISITIONS

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

On October 10, 2021, we entered into a purchase agreement to acquire Genesis as well as a related loan portfolio from Goldman Sachs. On December 20, 2021, we completed the acquisition of Genesis for a purchase price of approximately $1.63 billion concurrent with in-place financing of approximately $1.26 billion from Goldman Sachs. Genesis is a lender specializing in providing innovative solutions to developers of new construction, fix and flip and rental hold projects, and the related loan portfolio. Genesis adds a new complementary business line and adds mortgage loan lending to our suite of products. Furthermore, the acquisition is expected to support our growing single-family rental strategy that allows us to capture additional unmet demand from our Retail and Wholesale origination channels.

CAPITAL ACTIVITIES

On April 14, 2021, we priced our underwritten public offering of 45,000,000 shares of our 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. On April 16, 2021, the underwriters exercised their option, in part, to purchase an additional 6,725,000 shares of common stock. The offering closed on April 19, 2021. To compensate the Manager for its successful efforts in raising capital for 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.

On May 19, 2021, we entered into a Distribution Agreement to sell shares of our common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price of up to $500.0 million, from time to time, through an “at-the-market” equity offering program (the “ATM Program”). During the year ended December 31, 2021, we issued an aggregate of 178,000 shares of our common stock at an average price of $11.39 per share, net of fees.

On September 14, 2021, we priced our underwritten public offering of 17,000,000 of our 7.00% fixed-rate reset series D cumulative redeemable preferred stock, par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $449.5 million. The offering closed on September 17, 2021. In connection with the offering, we granted the underwriters an option for a period of 30 days to purchase up to an additional 2,550,000 shares of preferred stock at

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a price of $24.2125 per share. On September 22, 2021, the underwriters exercised their option, in part, to purchase an additional 1,600,000 shares of preferred stock. To compensate the Manager for its successful efforts in raising capital for us, we granted options to the Manager relating to approximately 1.9 million shares of our common stock at $10.89 per share.

In December 2021, our board of directors authorized the repurchase of up to $200.0 million of our common stock and $100.0 million of our preferred stock through December 31, 2022. 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 programs 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.

MARKET CONSIDERATIONS

In 2020, the U.S. economy faced unprecedented challenges brought on the surging COVID-19 pandemic. In 2021, COVID-19 and its evolving variants, including the highly transmissible Delta and Omicron variants, continued to create uncertainty on the U.S. economy.

The Federal Reserve’s actions in response to the pandemic have been commendable. When COVID-19 first began spreading, there was a significant possibility that the financial market turmoil would exacerbate the country’s economic problems. The Federal Reserve’s prompt and strong actions kept financial markets liquid and operating, preventing that additional level of pain. Furthermore, with U.S. gross domestic product (“GDP”) now above the pre-pandemic level, strong employment growth, and some signs of incipient inflation, the Federal Reserve has started to unwind its pandemic response. Discussions regarding tapering purchases of long-term assets (quantitative easing) in mid-December of 2021 indicated that the Federal Reserve will conclude its large scale asset purchase program as soon as March of 2022 in addition to five or more potential rate hikes expected to follow in 2022.

In March 2021, federal stimulus payments from the passage of the $1.9 trillion American Rescue Plan (“ARP”) boosted consumer spending and lifted the personal savings rate to striking levels not seen in past business cycles. According to Bloomberg Economics, roughly three-quarters of the close to $2.6 trillion in excess savings built up during the pandemic are concentrated in households other than the top income quintile, implying the median household has sufficient cash to absorb higher prices. In August 2021, the Bipartisan Infrastructure bill was signed into law. In doing so, the federal government committed to providing about $550 billion in new money for infrastructure spending over the next five years. The bill earmarks funds for a wide range of projects, from improving the electrical grid to rebuilding roads, bridges and rails.

Headline inflation rates have increased dramatically in 2021. But that commentary has been somewhat at odds with the actual inflation data. The data indicates the potential for a problem, but there are few signs of a significant increase in inflationary pressures of the type required for hyperinflation. To a large degree, the increase in inflation throughout 2021 reflected a combination of pandemic-induced supply-demand mismatches, rising commodity prices, and policy-related developments (such as the increase in the shelter component of U.S. consumer prices as rent and mortgage moratoriums expired in some jurisdictions), rather than a sharp drop-off in spare capacity. In the near term, indicators point to a highly uncertain outlook for inflation, although many believe that inflation is expected to come down to its pre-pandemic range, once supply-demand mismatches resolve.

The housing sector outperformed the broader economy during 2021 in the wake of the pandemic as buyers and sellers found ways to navigate the pandemic’s restrictions. Demand for houses remained high, and homebuilder confidence remained above pre–COVID-19 levels. A host of factors combined to boost housing demand over the past year including the continued strong economic position of high-wage remote workers, growing expectation that remote work will persist after the pandemic, millennials moving into prime home-buying age, and historically low mortgage rates. Looking more closely at mortgage rate data, rates increased slightly throughout the year 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 year. The share of mortgages in forbearance declined further. While loan originations benefited from low interest rates, including the elimination of the 50 basis point mortgage refinancing pandemic fee imposed by Fannie Mae and Freddie Mac, gain on sale margins continued to tighten throughout the year, driven by the Federal Reserve’s commitment of increasing interest rates and 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. Looking forward, data

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indicates that more vacant developed lots of land could be available for homebuilding, driving an uptick in short-term housing supply, though housing demand in the medium term is expected to temper due to reduced affordability. Nominal home price increases are likely to more than offset the impact of low mortgage rates on demand and interest rates are set to rise as the recovery continues to gather speed. Despite the slowdown, demand is likely to exceed supply in the near term as builders continue to grapple with supply chain issues.

Financial markets throughout the pandemic have remained uncertain and sensitive to any policy outlook as well as to news regarding inflation prospects. The first quarter of 2021 and a brief period in June saw an uptick of financial market volatility, with investors repositioning portfolio holdings as they reassessed the outlook for U.S. inflation and monetary policy. Concerns about the spread of the Delta and Omicron variants and associated implications for the recovery have also sparked episodes of volatility throughout the year. Even so, the overall picture is still one of broadly supportive financial conditions. Equity markets have remained buoyant throughout the year and credit spreads have remained tight.

The mindset regarding labor markets has quickly switched in 2021. At its low point in 2020, employment was 10 million below the pre-pandemic level and the main question was how difficult it would be to get workers back to full employment. In 2021, the story flipped and the focus was on labor shortages and how employers were struggling to find workers. As the recovery further continues, labor markets have continued to tighten, making it more difficult for employers to fill positions quickly. In the U.S., the ratio of job openings to unemployed workers is currently close to 1:1.

Nearly two years into the pandemic, there are signs that the worst of a once-in-a-century shock to the global economy is beginning to fade. As the U.S. economy approaches a full reopening amid a resurging pandemic, unique policy challenges are expected to remain. Accommodative monetary policy and robust fiscal support, which blunted the downturn and continue to bolster growth, are likely to fade in 2022. The current bout of inflation in the U.S. poses another major risk to growth, and the Federal Reserve is setting the stage to end its support in 2022. Other major wildcards in the near term remain with regard to fiscal policy including the fate of the current administration’s proposed Build Back Better social spending program, which continues to be re-worked and re-negotiated. While vaccinations and boosters have proven effective at mitigating the adverse health impacts of COVID-19, vaccine hesitancy and higher infectiousness have left many people still susceptible. Furthermore, emergence of more transmissible and deadlier SARS-CoV-2 variants could further re-energize the pandemic’s spread and intensity, prolonging the pandemic and precipitating pullbacks of economic activity. Trade disruptions and supply-demand mismatches could increase with port closures due to renewed lockdowns. Early studies suggest that existing vaccines may show reduced efficacy against the latest variants, although their levels of protection against severe disease still remain high. Each infection represents another opportunity for the virus to mutate into an even more detrimental pathogen. That said, the economy continues to transition to learning to live with a disease that can be managed.

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

The following table summarizes the annualized GDP growth rate:

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","December 31,2021(A)","","September 30, 2021","","June 30, 2021","","March 31, 2021","","December 31, 2020"],["Real GDP","6.9","%","","2.3","%","","6.7","%","","6.3","%","","4.5","%"]]
[[/GREPCENT_TABLE]]

(A)Annualized rate based on the advance estimate.

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

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[[GREPCENT_TABLE]]
[["","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021","","December 31, 2020"],["Unemployment rate","3.9","%","","4.7","%","","5.9","%","","6.0","%","","6.7","%"]]
[[/GREPCENT_TABLE]]

The following table summarizes the 10-year Treasury rate and the 30-year fixed mortgage rates:

[[GREPCENT_TABLE]]
[["","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021","","December 31, 2020"],["10-year U.S. Treasury rate","1.5","%","","1.5","%","","1.5","%","","1.7","%","","0.9","%"],["30-year fixed mortgage rate","3.1","%","","2.9","%","","3.0","%","","3.1","%","","2.7","%"]]
[[/GREPCENT_TABLE]]

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 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 December 31, 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.

CHANGES TO LIBOR

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 had been expected that a number of private-sector banks currently reporting information used to set LIBOR would stop doing so after 2021 when their current reporting commitment ends, which would 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. On March 5, 2021, Intercontinental Exchange Inc. (“ICE”) announced that ICE Benchmark Administration Limited, the administrator of LIBOR, intends to stop publication of the majority of USD-LIBOR tenors (overnight, 1-, 3-, 6-, and 12-month) on June 30, 2023. On January 1, 2022, ICE discontinued the publication of the 1-week and 2-month tenors of USD-LIBOR. 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. However, some market participants are still evaluating what convention of SOFR will be adopted for various types of financial instruments and securitization vehicles. For example, the mortgage and derivatives markets have adopted the daily compounded and paid in arrears SOFR convention. In contrast, GSEs, such as Fannie Mae and Freddie Mac, have begun issuing adjustable rate mortgages and mortgage-backed securities indexed to the 30-, 90-, and 180-day Average SOFR rates published by the Federal Reserve Bank of New York as well as term SOFR rates in the future.

We have material contracts that are indexed to USD-LIBOR and are monitoring this activity, evaluating the related risks and our exposure, and adding alternative language to contracts, where necessary. Certain contracts, such as interest rate swaps, have an orderly market transition already in process. However, it is not possible to predict the effect of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for LIBOR-based financial instruments. We do not currently intend to amend our 7.50% Series A-, 7.125% Series B-, 6.375% Series C- Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock to change the existing USD-LIBOR cessation fallback language.

The Financial Accounting Standards Board has issued accounting guidance that provides optional expedients and exceptions to contracts, hedging relationships and other transactions impacted by LIBOR transition if certain criteria are met. The guidance can be applied as of January 1, 2020. 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 residential loans. For debt facilities that do not mature prior to the phase-out of LIBOR, we have implemented amending terms to transition to an alternative benchmark. We continue to evaluate the transitional impact to serviced ARMs.

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OUR PORTFOLIO

Our portfolio, as of December 31, 2021, is composed of servicing and origination, including our subsidiary operating entities, residential securities and loans and other investments, as described in more detail below. The assets in our portfolio are described in more detail below (dollars in thousands).

[[GREPCENT_TABLE]]
[["","","Origination and Servicing","","Residential Securities, Properties and Loans"],["","","Origination","","Servicing","","MSR Related Investments","","Total Origination and Servicing","","Real Estate Securities","","Properties and Residential Mortgage Loans","","Consumer Loans","","Mortgage Loans Receivable","","Corporate","","Total"],["December 31, 2021"],["Investments","","$","8,829,598","","","$","5,439,613","","","$","2,776,078","","","$","17,045,289","","","$","9,396,539","","","$","3,099,294","","","$","507,291","","","$","1,515,762","","","$","\u2014","","","$","31,564,175"],["Cash and cash equivalents","","587,685","","","250,294","","","288,900","","","1,126,879","","","197,559","","","22","","","1,437","","","5,653","","","1,025","","","1,332,575"],["Restricted cash","","32,803","","","95,785","","","27,182","","","155,770","","","15,342","","","2,482","","","21,961","","","\u2014","","","312","","","195,867"],["Other assets","","969,338","","","2,728,253","","","1,926,482","","","5,624,073","","","389,309","","","125,647","","","39,662","","","106,615","","","279,068","","","6,564,374"],["Goodwill","","11,836","","","12,540","","","5,092","","","29,468","","","\u2014","","","\u2014","","","\u2014","","","55,731","","","\u2014","","","85,199"],["Total assets","","$","10,431,260","","","$","8,526,485","","","$","5,023,734","","","$","23,981,479","","","$","9,998,749","","","$","3,227,445","","","$","570,351","","","$","1,683,761","","","$","280,405","","","$","39,742,190"],["Debt","","$","8,251,702","","","$","4,131,297","","","$","3,561,342","","","$","15,944,341","","","$","9,040,309","","","$","2,440,693","","","$","460,314","","","$","1,252,660","","","$","642,670","","","$","29,780,987"],["Other liabilities","","425,582","","","2,323,315","","","182,460","","","2,931,357","","","6,991","","","179,260","","","583","","","8,541","","","165,091","","","3,291,823"],["Total liabilities","","8,677,284","","","6,454,612","","","3,743,802","","","18,875,698","","","9,047,300","","","2,619,953","","","460,897","","","1,261,201","","","807,761","","","33,072,810"],["Total equity","","1,753,976","","","2,071,873","","","1,279,932","","","5,105,781","","","951,449","","","607,492","","","109,454","","","422,560","","","(527,356)","","","6,669,380"],["Noncontrolling interests in equity of consolidated subsidiaries","","15,683","","","\u2014","","","10,251","","","25,934","","","\u2014","","","\u2014","","","39,414","","","\u2014","","","\u2014","","","65,348"],["Total New Residential stockholders\u2019 equity","","$","1,738,293","","","$","2,071,873","","","$","1,269,681","","","$","5,079,847","","","$","951,449","","","$","607,492","","","$","70,040","","","$","422,560","","","$","(527,356)","","","$","6,604,032"],["Investments in equity method investees","","$","\u2014","","","$","\u2014","","","$","105,592","","","$","105,592","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","105,592"]]
[[/GREPCENT_TABLE]]

Operating Investments

Origination

Our origination business operates through the lending division within our Mortgage Company. We have a multi-channel lending platform, offering purchase and refinance loan products. We also provide refinance opportunities to eligible existing servicing customers, primarily through the Direct to Consumer channel, and originates or purchases loans from brokers or originators through our Retail / Joint Venture, Wholesale, and Correspondent channels. We originate or purchase residential mortgage loans conforming to the underwriting standards of the Agencies, government-insured residential mortgage loans which are insured by the FHA, VA and USDA, and non-conforming loans, through our SMART Loan Series. Our non-conforming loan products provide a variety of options for highly qualified borrowers who fall outside the specific requirements of Agency residential mortgage loans.

We generate revenue through sales of residential mortgage loans, including, but not limited to, gain on residential loans originated and sold, the settlement of residential mortgage loan origination derivative instruments and the value of MSRs retained on transfer of the loans. Profit margins per loan vary by channel, with correspondent typically being the lowest and Retail / Joint Venture being the highest. We sell conforming loans to the GSEs and securitize Non-QM residential loans. We utilize warehouse financing to fund loans at origination through the sale date.

For the full year ended December 31, 2021, funded loan origination volume was $123.3 billion, up from $61.6 billion in the year prior, primarily attributable to a low interest rate environment that drove increases in origination volumes across all channels. Additionally, the Caliber acquisition completed in the third quarter of 2021 further supported volume and market share growth. For the full year 2021, 72% of funded production was Agency, 26% was Government, 1% was Non-Agency and 1% was Non-QM residential mortgage loans.

Gain on sale margins for the full year ended December 31, 2021 was 1.51%, 34 bps lower than 1.85% for the same period in 2020. During 2021, while gain on sale margins remained attractive—driven by continued demand for loans amidst industry capacity constraints whereby demand for new loans exceeded the industry’s ability to fulfill the demand—margins compressed over the year to more normal levels.

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

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The tables below provide selected operating statistics for our Origination segment:

[[GREPCENT_TABLE]]
[["","Unpaid Principal Balance for the Year Ended December 31,","","Increase (Decrease)"],["(in millions)","2021","","% of Total","","2020","","% of Total","","Amount","","%"],["Production by Channel"],["Direct to Consumer","$","25,182","","20%","","$","12,847","","21%","","$","12,335","","","96","%"],["Retail / Joint Venture","16,781","","14%","","3,999","","6%","","12,782","","","320","%"],["Wholesale","16,189","","13%","","7,223","","12%","","8,966","","","124","%"],["Correspondent","65,136","","53%","","37,535","","61%","","27,601","","","74","%"],["Total Production by Channel","$","123,288","","100%","","$","61,604","","100%","","$","61,684","","100","%"],["Production by Product"],["Agency","$","88,272","","72%","","40,424","","66%","","47,848","","","118","%"],["Government","32,380","","26%","","20,279","","33%","","12,101","","","60","%"],["Non-QM","603","","1%","","365","","\u2014%","","238","","","65","%"],["Non-Agency","1,690","","1%","","454","","1%","","1,236","","","272","%"],["Other","343","","\u2014%","","82","","\u2014%","","261","","","318","%"],["Total Production by Product","$","123,288","","100%","","$","61,604","","100%","","$","61,684","","","100","%"],["% Purchase","42","%","","","","29","%"],["% Refinance","58","%","","","","71","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Gain on originated residential mortgage loans, held-for-sale, net(A)(B)(C)(D)","$","1,704,363","","$","1,289,584","","$","414,779","","","32.2","%"],["Pull through adjusted lock volume","$","112,644,932","","","$","69,795,637","","","$","42,849,295","","","61.4","%"],["Gain on originated residential mortgage loans, as a percentage of pull through adjusted lock volume, by channel:"],["Direct to Consumer","3.97","%","","3.61","%"],["Retail / Joint Venture","3.66","%","","4.57","%"],["Wholesale","1.09","%","","2.38","%"],["Correspondent","0.28","%","","0.56","%"],["Total gain on originated residential mortgage loans, as a percentage of pull through adjusted lock volume","1.51","%","","1.85","%"]]
[[/GREPCENT_TABLE]]

(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 $2.3 billion and $1.7 billion for the year ended December 31, 2021 and 2020, respectively.

(C)Excludes $122.5 million and $109.5 million of Gain on Originated Residential Mortgage Loans, Held-for-Sale, Net for the year ended December 31, 2021 and 2020, respectively, related to the MSR Related Investments, Servicing, and Residential Mortgage Loans segments, as well as intercompany eliminations (Note 9 to the Consolidated Financial Statements).

(D)Excludes mortgage servicing rights revenue on recaptured loan volume delivered back to NRM.

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. We are highly experienced in loan servicing, including loan modifications, and seek to help borrowers avoid foreclosure. The performing loan servicing division services performing Agency and government-insured loans. SMS services

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delinquent government-insured, Agency and Non-Agency loans on behalf of the owners of the underlying mortgage loans. During the third quarter, as part of the Caliber acquisition, we assumed Caliber’s servicing portfolio, including $156 billion of UPB of performing servicing. As of December 31, 2021, the performing loan servicing division serviced $384.3 billion UPB of loans and Shellpoint Mortgage Servicing serviced $98.5 billion UPB of loans, for a total servicing portfolio of $482.8 billion UPB, representing a 62.1% increase from December 31, 2020. Active forbearances within this portfolio continued to decline during the year as our servicer continued to help homeowners and clients navigate the COVID-19 landscape. Less than 1% of this portfolio was in active forbearance as of December 31, 2021, down from 3.44% in the prior year.

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.

[[GREPCENT_TABLE]]
[["","Unpaid Principal Balance as of December 31,","","Increase (Decrease)"],["(in millions)","2021","","2020","","Amount","","%"],["Performing Servicing"],["MSR Assets","$","376,218","","","$","199,405","","","$","176,813","","","88.7","%"],["Residential Whole Loans","7,539","","","5,041","","","2,498","","","49.6","%"],["Third Party","509","","\u2014","","509","","","100.0","%"],["Total Performing Servicing","384,266","","","204,446","","","179,820","","","88.0","%"],["Special Servicing"],["MSR Assets","$","13,634","","","$","21,475","","","$","(7,841)","","","(36.5)","%"],["Residential Whole Loans","6,558","","","4,952","","","1,606","","","32.4","%"],["Third Party","78,305","","","66,892","","","11,413","","","17.1","%"],["Total Special Servicing","98,497","","","93,319","","","5,178","","","5.5","%"],["Total Servicing Portfolio","$","482,763","","","$","297,765","","","$","184,998","","","62.1","%"],["Agency Servicing"],["MSR Assets","$","272,919","","","$","157,210","","","$","115,709","","","73.6","%"],["Third Party","11,027","","","15,566","","","(4,539)","","","(29.2)","%"],["Total Agency Servicing","283,946","","","172,776","","","111,170","","","64.3","%"],["Government Servicing"],["MSR Assets","$","109,577","","","$","57,148","","","$","52,429","","","91.7","%"],["Total Government Servicing","109,577","","","57,148","","","52,429","","","91.7","%"],["Non-Agency (Private Label) Servicing"],["MSR Assets","$","7,356","","","$","6,522","","","$","834","","","12.8","%"],["Residential Whole Loans","14,097","","","9,993","","","4,104","","","41.1","%"],["Third Party","67,787","","","51,326","","","16,461","","","32.1","%"],["Total Non-Agency (Private Label) Servicing","89,240","","","67,841","","","21,399","","","31.5","%"],["Total Servicing Portfolio","$","482,763","","","$","297,765","","","$","184,998","","","62.1","%"]]
[[/GREPCENT_TABLE]]

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The table below summarizes base servicing fees and other fees for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["(in thousands)","2021","","2020","","Amount","","%"],["Base Servicing Fees"],["MSR Assets","$","731,924","","","$","611,669","","","$","120,255","","","19.7","%"],["Residential Whole Loans","16,448","","","16,081","","","367","","","2.3","%"],["Third Party","103,617","","","139,480","","","(35,863)","","","(25.7)","%"],["Total Base Servicing Fees","851,989","","","767,230","","","84,759","","","11.0","%"],["Other Fees"],["Incentive fees","85,789","","","53,195","","","32,594","","","61.3","%"],["Ancillary fees","49,900","","","41,076","","","8,824","","","21.5","%"],["Boarding fees","9,720","","","12,018","","","(2,298)","","","(19.1)","%"],["Other fees","28,490","","","17,672","","","10,818","","","61.2","%"],["Total Other Fees(A)","173,899","","","123,961","","","49,938","","","40.3","%"],["Total Servicing Fees","$","1,025,888","","","$","891,191","","","$","134,697","","","15.1","%"]]
[[/GREPCENT_TABLE]]

(A)Includes other fees earned from third parties of $54.9 million and $62.1 million for the year ended December 31, 2021 and 2020, respectively.

MSR Related Investments

MSRs and MSR Financing Receivables

As of December 31, 2021, we had $6.9 billion carrying value of MSRs and MSR Financing Receivables. For the year ended December 31, 2021 our Full and Excess MSR portfolio increased to $629 billion UPB from $536 billion UPB as of December 31, 2020. Full MSRs increased to $549 billion UPB as of December 31, 2021 from $435 billion UPB as of December 31, 2020. Excess MSRs decreased to $80 billion UPB as of December 31, 2021 from $101 billion UPB as of December 31, 2020. The increase in portfolio size during the periods presented was predominantly a result of the Caliber acquisition and MSRs retained from originations offset by prepayments.

We finance our investments in 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 13 to our Consolidated Financial Statements for further information regarding financing of our MSRs and MSR Financing Receivables.

We have contracted with certain subservicers to perform the related servicing duties on the residential mortgage loans underlying our MSRs. As of December 31, 2021, these subservicers include PHH, Mr. Cooper, LoanCare, Valon and Flagstar, which subservice 10.4%, 9.4%, 8.1%, 0.9% and 0.3% of the underlying UPB of the related mortgages, respectively (includes both MSRs and MSR Financing Receivables). The remaining 70.9% of the underlying UPB of the related mortgages is subserviced by our Mortgage Company.

We are, generally, obligated to fund all future servicer advances related to the underlying pools of mortgages on our MSRs and MSR Financing Receivables, as well as Servicer Advance Investments. Generally, we will advance funds when the borrower fails to meet 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

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and subservicers. Per the servicing agreements, we are obligated to make certain advances on mortgages to be in 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 13 to our Consolidated Financial Statements for further information regarding financing of our servicer advances.

The table below summarizes our MSRs and MSR Financing Receivables as of December 31, 2021.

[[GREPCENT_TABLE]]
[["","","","Current UPB (millions)","","Weighted Average MSR (bps)","","","","","Carrying Value (millions)"],["GSE","","","$","374,815.6","","","28","","bps","","","","$","4,443.7"],["Non-Agency","","","63,851.1","","","48","","","","","","943.2"],["Ginnie Mae","","","109,946.4","","","39","","","","","","1,471.9"],["Total","","","$","548,613.1","","","33","","bps","","","","$","6,858.8"]]
[[/GREPCENT_TABLE]]

The following tables summarize the collateral characteristics of the loans underlying our investments in MSRs and MSR Financing Receivables as of December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","Current Carrying Amount","","","","Current Principal Balance","","Number of Loans","","WA FICO Score(A)","","WA Coupon","","WA Maturity (months)","","Average Loan Age (months)","","Adjustable Rate Mortgage %(B)","","Three Month Average CPR(C)","","Three Month Average CRR(D)","","Three Month Average CDR(E)","","Three Month Average Recapture Rate"],["GSE","$","4,443,713","","","","","$","374,815,579","","","2,074,565","","","755","","","3.6","%","","280","","","49","","","1.6","%","","18.4","%","","16.9","%","","0.1","%","","19.2","%"],["Non-Agency","943,210","","","","","63,851,154","","","576,559","","","639","","","4.3","%","","292","","","183","","","10.6","%","","13.3","%","","11.6","%","","1.6","%","","4.9","%"],["Ginnie Mae","1,471,880","","","","","109,946,356","","","489,760","","","698","","","3.2","%","","333","","","23","","","0.8","%","","18.2","%","","11.2","%","","0.1","%","","26.8","%"],["Total","$","6,858,803","","","","","$","548,613,089","","","3,140,884","","","730","","","3.6","%","","292","","","59","","","2.5","%","","17.8","%","","15.2","%","","0.3","%","","19.1","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","Delinquency 30 Days(F)","","Delinquency 60 Days(F)","","Delinquency 90+ Days(F)","","Loans in Foreclosure","","Real Estate Owned","","Loans in Bankruptcy"],["GSE","0.9","%","","0.2","%","","1.4","%","","0.1","%","","\u2014","%","","0.1","%"],["Non-Agency","7.2","%","","2.8","%","","6.0","%","","5.1","%","","0.8","%","","2.3","%"],["Ginnie Mae","2.6","%","","0.8","%","","2.6","%","","0.2","%","","\u2014","%","","0.4","%"],["Total","2.0","%","","0.6","%","","2.1","%","","0.7","%","","0.1","%","","0.4","%"]]
[[/GREPCENT_TABLE]]

(A)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)Represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)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)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)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)Represents 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.

Excess MSRs

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The tables below summarize the terms of our Excess MSRs:

Summary of Direct Excess MSR Investments as of December 31, 2021

[[GREPCENT_TABLE]]
[["","","","","","MSR Component(A)","","","","","","Excess MSR"],["","","","Current UPB (billions)","","Weighted Average MSR (bps)","","Weighted Average Excess MSR (bps)","","Interest in Excess MSR (%)","","","","Carrying Value (millions)"],["Agency","","","$","26.9","","","29","","","21","","","32.5% - 66.7%","","","","$","132.0"],["Non-Agency(B)","","","30.6","","","35","","","15","","","33.3% - 100%","","","","127.2"],["Total/Weighted Average","","","$","57.5","","","32","","bps","18","","bps","","","","","$","259.2"]]
[[/GREPCENT_TABLE]]

(A)The MSR is a weighted average as of December 31, 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 7 to our Consolidated Financial Statements) on $20.3 billion UPB underlying these Excess MSRs.

Summary of Excess MSR Investments Through Equity Method Investees as of December 31, 2021

[[GREPCENT_TABLE]]
[["","","","","","MSR Component(A)"],["","","","Current UPB (billions)","","Weighted Average MSR (bps)","","Weighted Average Excess MSR (bps)","","New Residential Interest in Investee (%)","","Investee Interest in Excess MSR (%)","","New Residential Effective Ownership (%)","","Investee Carrying Value (millions)"],["Agency","","","$","23.0","","","33","","","22","","","50.0","%","","66.7","%","","33.3","%","","$","152.4"]]
[[/GREPCENT_TABLE]]

(A)The MSR is a weighted average as of December 31, 2021, and the Excess MSR represents the difference between the weighted average MSR and the basic fee (which fee remains constant).

The following tables summarize the collateral characteristics of the loans underlying our direct Excess MSR investments as of December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","Current Carrying Amount","","","","Current Principal Balance","","Number of Loans","","WA FICO Score(A)","","WA Coupon","","WA Maturity (months)","","Average Loan Age (months)","","Adjustable Rate Mortgage %(B)","","Three Month Average CPR(C)","","Three Month Average CRR(D)","","Three Month Average CDR(E)","","Three Month Average Recapture Rate"],["Agency"],["Original Pools","$","75,867","","","","","$","16,569.671","","","141,862","","","731","","","4.5","%","","225","","","144","","","1.5","%","","22.3","%","","21.8","%","","0.7","%","","21.2","%"],["Recaptured Loans","56,130","","","","","10,287.275","","","64,927","","","737","","","3.9","%","","262","","","49","","","\u2014","%","","23.1","%","","22.8","%","","0.4","%","","40.0","%"],["","$","131,997","","","","","$","26,856.946","","","206,789","","","733","","","4.3","%","","240","","","106","","","0.9","%","","22.6","%","","22.2","%","","0.6","%","","28.8","%"],["Non-Agency(F)"],["Mr. Cooper and SLS Serviced:"],["Original Pools","$","102,505","","","","","$","26,903.742","","","157,134","","","680","","","4.2","%","","268","","","189","","","8.5","%","","17.8","%","","16.4","%","","1.8","%","","15.4","%"],["Recaptured Loans","24,696","","","","","3,661.489","","","17,524","","","743","","","3.6","%","","273","","","29","","","\u2014","%","","21.4","%","","21.4","%","","\u2014","%","","43.8","%"],["","$","127,201","","","","","$","30,565.231","","","174,658","","","687","","","4.1","%","","268","","","171","","","6.8","%","","18.2","%","","16.9","%","","1.6","%","","19.1","%"],["Total/Weighted Average(I)","$","259,198","","","","","$","57,422.177","","","381,447","","","708","","","4.2","%","","255","","","141","","","3.8","%","","20.2","%","","19.3","%","","1.1","%","","24.2","%"]]
[[/GREPCENT_TABLE]]

83

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","Delinquency 30 Days(G)","","Delinquency 60 Days(G)","","Delinquency 90+ Days(G)","","Loans in Foreclosure","","Real Estate Owned","","Loans in Bankruptcy"],["Agency"],["Original Pools","2.0","%","","0.6","%","","3.6","%","","0.5","%","","0.1","%","","0.1","%"],["Recaptured Loans","1.3","%","","0.4","%","","2.4","%","","0.1","%","","\u2014","%","","\u2014","%"],["","1.7","%","","0.5","%","","3.1","%","","0.3","%","","0.1","%","","0.1","%"],["Non-Agency(F)"],["Mr. Cooper and SLS Serviced:"],["Original Pools","11.5","%","","3.7","%","","4.6","%","","5.2","%","","0.4","%","","1.4","%"],["Recaptured Loans","1.2","%","","0.2","%","","1.4","%","","\u2014","%","","\u2014","%","","\u2014","%"],["","10.3","%","","3.3","%","","4.2","%","","4.7","%","","0.3","%","","1.3","%"],["Total/Weighted Average(H)","6.4","%","","2.0","%","","3.7","%","","2.7","%","","0.2","%","","0.7","%"]]
[[/GREPCENT_TABLE]]

(A)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)Represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)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)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)Involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the quarter as a percentage of the total principal balance of the pool.

(F)We also invested in related Servicer Advance Investments, including the basic fee component of the related MSR (Note 7 to our Consolidated Financial Statements) on $20.3 billion UPB underlying these Excess MSRs.

(G)Represents 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.

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

The following tables summarize the collateral characteristics as of December 31, 2021 of the loans underlying Excess MSR investments 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.

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","Current Carrying Amount","","","","Current Principal Balance","","New Residential Effective Ownership (%)","","Number of Loans","","WA FICO Score(A)","","WA Coupon","","WA Maturity (months)","","Average Loan Age (months)","","Adjustable Rate Mortgage %(B)","","Three Month Average CPR(C)","","Three Month Average CRR(D)","","Three Month Average CDR(E)","","Three Month Average Recapture Rate"],["Agency"],["Original Pools","$","65,682","","","","","$","11,718,462","","","33.3","%","","132,308","","","716","","","5.1","%","","216","","","163","","","1.2","%","","21.1","%","","19.7","%","","1.8","%","","24.0","%"],["Recaptured Loans","86,701","","","","","11,320,991","","","33.3","%","","86,543","","","722","","","3.9","%","","257","","","58","","","\u2014","%","","22.9","%","","22.5","%","","0.8","%","","45.7","%"],["Total/Weighted Average","$","152,383","","","","","$","23,039,453","","","","","218,851","","","719","","","4.5","%","","236","","","112","","","1.2","%","","22.1","%","","21.0","%","","1.3","%","","35.4","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","Delinquency 30 Days(F)","","Delinquency 60 Days(F)","","Delinquency 90+ Days(F)","","Loans in Foreclosure","","Real Estate Owned","","Loans in Bankruptcy"],["Agency"],["Original Pools","2.8","%","","0.7","%","","3.5","%","","0.7","%","","0.2","%","","0.2","%"],["Recaptured Loans","1.8","%","","0.5","%","","2.6","%","","0.1","%","","\u2014","%","","0.1","%"],["Total/Weighted Average(G)","2.3","%","","0.6","%","","3.1","%","","0.4","%","","0.1","%","","0.1","%"]]
[[/GREPCENT_TABLE]]

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

(B)Represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.

(C)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)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.

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(E)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)Represents 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.

(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):

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","Amortized Cost Basis","","Carrying Value(A)","","UPB of Underlying Residential Mortgage Loans","","Outstanding Servicer Advances","","Servicer Advances to UPB of Underlying Residential Mortgage Loans"],["Servicer Advance Investments"],["Mr. Cooper and SLS serviced pools","$","405,786","","","$","421,807","","","$","20,314,977","","","$","369,440","","","1.8","%"]]
[[/GREPCENT_TABLE]]

(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 year ended, December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","Year Ended December 31, 2021","","","","Loan-to-Value (\u201cLTV\u201d)(A)","","Cost of Funds(B)"],["","","Weighted Average Discount Rate","","Weighted Average Life (Years)(C)","","Change in Fair Value","","Face Amount of Secured Notes and Bonds Payable","","Gross","","Net(D)","","Gross","","Net"],["Servicer Advance Investments(E)","","5.2","%","","6.9","","$","(9,076)","","","$","356,580","","","91.4","%","","90.7","%","","1.7","%","","1.2","%"]]
[[/GREPCENT_TABLE]]

(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)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:

[[GREPCENT_TABLE]]
[["","","December 31, 2021"],["Principal and interest advances","","$","67,014"],["Escrow advances (taxes and insurance advances)","","174,681"],["Foreclosure advances","","127,745"],["Total","","$","369,440"]]
[[/GREPCENT_TABLE]]

The Buyer

We, through a wholly owned subsidiary, are the managing member of the Buyer. As of December 31, 2020, we owned 73.2% interest in the Buyer. In July 2021, we entered into a purchase and sales agreement with certain third-party co-investors whereby we agreed to purchase from certain third-party co-investments 16.1% of aggregate interest in the Buyer, increasing our ownership of the Buyer to 89.3% as of December 31, 2021. 

In the event that any member of the Buyer does not fund its capital contribution, each other member has the right, but not the obligation, to make pro rata capital contributions in excess of its stated commitment, provided that any member’s decision not to fund any such capital contribution will result in a reduction of its membership percentage.

Servicing Fee

Mr. Cooper and SLS remain the named servicers under the applicable servicing agreements and will continue to perform all servicing duties for the related residential mortgage loans. The Buyer, or the related New Residential subsidiary, as applicable,

85

has the right, but not the obligation, to become the named servicer with respect to its investments, subject to obtaining consents and ratings agency approvals required for a formal change of the named servicer. In exchange for their services, we pay Mr. Cooper and SLS a monthly servicing fee representing a portion of the amounts from the purchased basic fee.

The Mr. Cooper Servicing Fee is equal to a fixed percentage of the amounts from the purchased basic fee. This percentage was equal to approximately 9.2%, which is equal to (i) 2 bps divided by (ii) the basic fee, which is 21.8 bps, on a weighted average basis as of December 31, 2021. The SLS servicing fee is equal to 10.75 bps, based on the servicing fee collections of the underlying loans.

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, a provider of various technology-enabled services to the mortgage and real estate industries. As of December 31, 2021, our ownership interest in Covius is 18.1%.

Residential Securities and Loans

Real Estate Securities

Agency RMBS

The following table summarizes our Agency RMBS portfolio as of December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","","","Gross Unrealized"],["Asset Type","","Outstanding Face Amount","","Amortized Cost Basis","","Percentage of Total Amortized Cost Basis","","Gains","","Losses","","CarryingValue(A)","","Count","","Weighted Average Life (Years)","","3-Month CPR(B)","","Outstanding Repurchase Agreements"],["Agency RMBS","","$","8,399,343","","","$","8,663,694","","","100.0","%","","$","7,212","","","$","(226,309)","","","$","8,444,597","","","41","","","6.9","","17.8","%","","$","8,386,538"]]
[[/GREPCENT_TABLE]]

(A)Carrying value equals fair value.

(B)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 as of December 31, 2021:

[[GREPCENT_TABLE]]
[["Net Interest Spread(A)"],["Weighted Average Asset Yield","","2.14","%"],["Weighted Average Funding Cost","","0.16","%"],["Net Interest Spread","","1.98","%"]]
[[/GREPCENT_TABLE]]

(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 largely employ our Agency RMBS position as a hedge to our MSR portfolio. Our Agency RMBS portfolio was $8.4 billion as of December 31, 2021 compared to $12.5 billion as of December 31, 2020. We finance our Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At December 31, 2021 and 2020, the Company pledged Agency RMBS with a carrying value of approximately $8.4 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 13 to our Consolidated Financial Statements for further information regarding financing of our Agency RMBS.

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Non-Agency RMBS

During the first and second quarters of 2020, markets for mortgage-backed securities and other credit-related assets experienced significant volatility, widening credit spreads and sharp declines in liquidity. These factors had a material impact on our investment portfolio. Prior to the onset of COVID-19, a significant portion of our Non-Agency RMBS portfolio was financed with repurchase agreements. Fluctuations in the value of our portfolio of Non-Agency RMBS during March 2020, including as a result of changes in credit spreads, resulted in our being required to post additional collateral with our counterparties under these repurchase agreements. These fluctuations and requirements to post additional collateral were material. In an effort to mitigate the impact to our business from these developments and improve our liquidity, we sold a substantial portion of our Non-Agency RMBS portfolio in March 2020, for which we recorded significant realized losses. Refer to Note 18 to our Consolidated Financial Statements for further information regarding Non-Agency RMBS sales with affiliates. During 2020, we sold in aggregate $5.3 billion of Non-Agency RMBS. During 2020, we also significantly altered the composition of the financing profile of our Non-Agency RMBS portfolio by moving away from daily mark-to-market financing.

Within our Non-Agency RMBS portfolio we retain and own risk retention bonds from our securitizations in conjunction with risk retention regulations under the Dodd-Frank Act. As of December 31, 2021, 58.1% of our Non-Agency RMBS portfolio was related to bonds retained pursuant to required risk retention regulations.

The following table summarizes our Non-Agency RMBS portfolio as of December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","Gross Unrealized"],["Asset Type","","Outstanding Face Amount","","Amortized Cost Basis","","Gains","","Losses","","CarryingValue(A)","","Outstanding Repurchase Agreements"],["Non-Agency RMBS","","$","15,914,957","","","$","886,643","","","$","117,308","","","$","(52,009)","","","$","951,942","","","$","640,005"]]
[[/GREPCENT_TABLE]]

(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 December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Non- Agency RMBS Characteristics(A)"],["Vintage(B)","","Average Minimum Rating(C)","","Number of Securities","","Outstanding Face Amount","","Amortized Cost Basis","","Percentage of Total Amortized Cost Basis","","Carrying Value","","Principal Subordination(D)","","Excess Spread(E)","","Weighted Average Life (Years)","","Weighted Average Coupon(F)"],["Pre 2008","","NR","","121","","","$","449,215","","","$","17,766","","","2.0","%","","$","24,239","","","\u2014","%","","\u2014","%","","4.1","","","5.5","%"],["2008 and later","","BBB","","480","","","15,462,368","","","866,367","","","98.0","%","","924,306","","","25.2","%","","0.2","%","","3.3","","","2.7","%"],["Total/Weighted Average","","BBB-","","601","","","$","15,911,583","","","$","884,133","","","100.0","%","","$","948,545","","","24.6","%","","0.2","%","","3.3","","","2.7","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Collateral Characteristics(A) (G)"],["Vintage(B)","","Average Loan Age (years)","","Collateral Factor(H)","","3-Month CPR(I)","","Delinquency(J)","","Cumulative Losses to Date"],["Pre 2008","","13.9","","","0.1","","","10.0","%","","10.0","%","","10.0","%"],["2008 and later","","13.3","","","0.6","","","20.8","%","","4.1","%","","0.7","%"],["Total/Weighted Average","","13.3","","","0.6","","","20.6","%","","4.2","%","","0.8","%"]]
[[/GREPCENT_TABLE]]

(A)Excludes $3.0 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 298 bonds with a carrying value of $346.1 million which either have never been rated or for which rating information is no longer provided. We had no assets that were on negative watch for possible downgrade by at least one rating agency as of December 31, 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 December 31, 2021.

87

(F)Excludes residual bonds, and certain other Non-Agency bonds, with a carrying value of $23.5 million and $2.8 million, respectively, for which no coupon payment is expected.

(G)The weighted average loan size of the underlying collateral is $278.6 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 as of December 31, 2021:

[[GREPCENT_TABLE]]
[["Net Interest Spread(A)"],["Weighted Average Asset Yield","3.55","%"],["Weighted Average Funding Cost","2.43","%"],["Net Interest Spread","1.12","%"]]
[[/GREPCENT_TABLE]]

(A)The Non-Agency RMBS portfolio consists of 32.0% floating rate securities and 68.0% fixed rate securities (based on amortized cost basis).

We finance our Non-Agency RMBS with short-term borrowings under master repurchase agreements. These borrowings generally bear interest rates offered by the counterparty for the term of the proposed repurchase transaction (e.g., 30 days, 60 days, etc.) of a specified margin over one-month LIBOR. The repurchase agreements represent uncommitted financing. At December 31, 2021 and 2020, the Company pledged Non-Agency RMBS with a carrying value of approximately $924.9 million 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 13 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 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 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 $76.0 billion.

We continue to evaluate the call rights we acquired from each of our servicers, and our ability to exercise such rights and realize the benefits therefrom are subject to a number of risks. See “Risk Factors—Risks Related to Our Business—Our ability to exercise our cleanup call rights may be limited or delayed if a third party also possessing such cleanup call rights exercises such rights, if the related securitization trustee refuses to permit the exercise of such rights, or if a related party is subject to bankruptcy proceedings.” The actual UPB of the residential mortgage loans on which we can successfully exercise call rights and realize the benefits therefrom may differ materially from our initial assumptions.

We have exercised our call rights with respect to Non-Agency RMBS trusts and purchased performing and non-performing residential mortgage loans and REO contained in such trusts prior to their termination. In certain cases, we sold portions of the purchased loans through securitizations, and retained bonds issued by such securitizations. In addition, we received par on the securities issued by the called trusts which we owned prior to such trusts’ termination. Refer to Note 9 in our Consolidated Financial Statements for further details on these transactions.

On March 31, 2020, in connection with the sale of certain Non-Agency RMBS (the “Securities”), we agreed to exercise call rights with respect to those Securities on behalf and solely at the direction of one of the buyers.

88

Refer to Note 18 in our Consolidated Financial Statements for further details on these transactions for additional discussion regarding call rights and transactions with affiliates.

Residential Mortgage Loans

As of December 31, 2021, we had approximately $11.7 billion outstanding face amount of residential mortgage loans. These investments were financed with secured financing agreements with an aggregate face amount of approximately $10.1 billion and secured notes and bonds payable with an aggregate face amount of approximately $70.5 million.

The following table presents the total residential mortgage loans outstanding by loan type at December 31, 2021 (dollars in thousands).

[[GREPCENT_TABLE]]
[["","","Outstanding Face Amount","","Carrying Value","","Loan Count","","Weighted Average Yield","","Weighted Average Life (Years)(A)"],["Total residential mortgage loans, held-for-investment, at fair value(B)","","$","623,937","","","$","569,933","","","9,718","","","7.1","%","","5.1"],["Acquired performing loans(C)","","142,142","","","130,634","","","2,839","","","6.6","%","","4.6"],["Acquired non-performing loans(D)","","2,825","","","2,287","","","34","","","7.5","%","","4.7"],["Total residential mortgage loans, held-for-sale, at lower of cost or market","","$","144,967","","","$","132,921","","","2,873","","","6.6","%","","4.6"],["Acquired performing loans(C)(E)","","$","2,046,945","","","$","2,070,262","","","12,757","","","3.5","%","","12.4"],["Acquired non-performing loans(D)(E)","","343,133","","","315,063","","","2,249","","","4.8","%","","6.1"],["Originated loans","","8,565,456","","","8,829,599","","","12,479","","","3.2","%","","28.0"],["Total residential mortgage loans, held-for-sale, at fair value","","$","10,955,534","","","$","11,214,924","","","27,485","","","3.3","%","","24.4"]]
[[/GREPCENT_TABLE]]

(A)For loans classified as Level 3 in the fair value hierarchy, the weighted average life is based on the expected timing of the receipt of cash flows. For Level 2 loans, the weighted average life is based on the contractual term of the loan.

(B)Residential mortgage loans, held-for-investment, at fair value is grouped and presented as part of Residential Loans and Variable Interest Entity Consumer Loans, Held-for-Investment, at Fair Value on the Consolidated Balance Sheets.

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

(D)As of December 31, 2021, New Residential has placed non-performing loans, held-for-sale on non-accrual status, except as described in (E) below.

(E)Includes $860.4 million and $221.9 million UPB of Ginnie Mae EBO performing and non-performing loans, respectively, on accrual status as contractual cash flows are guaranteed by the FHA.

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 residential mortgage loans with borrowings under repurchase agreements. These recourse borrowings bear variable interest rates offered by the counterparty for the term of the proposed repurchase transaction, generally less than one year, of a specified margin over the one-month LIBOR. At December 31, 2021 and 2020, the Company pledged residential mortgage loans with a carrying value of approximately $11.0 billion and $4.5 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. 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 13 to our Consolidated Financial Statements for further information regarding financing of our residential mortgage loans.

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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 of December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Collateral Characteristics"],["","UPB","","Personal Unsecured Loans %","","Personal Homeowner Loans %","","Number of Loans","","Weighted Average Original FICO Score(A)","","Weighted Average Coupon","","Adjustable Rate Loan %","","Average Loan Age (months)","","Average Expected Life (Years)","","Delinquency 30 Days(B)","","Delinquency 60 Days(B)","","Delinquency 90+ Days(B)","","12-Month CRR(C)","","12-Month CDR(D)"],["Consumer loans, held-for-investment","$","449,875","","","58.1","%","","41.9","%","","70,850","","","690","","","17.6","%","","13.0","%","","203","","","3.2","","","1.4","%","","0.8","%","","1.5","%","","23.1","%","","4.1","%"]]
[[/GREPCENT_TABLE]]

(A)Represents the FICO score at the time the loan was originated.

(B)Represents 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)Represents the annualized rate of the voluntary prepayments during the three months as a percentage of the total principal balance of the pool.

(D)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 of May 2036. See Note 13 to our Consolidated Financial Statements for further information regarding financing of our consumer loans.

Single-Family Rental (“SFR”) Portfolio

During 2021, we continued to invest in and grow our SFR portfolio as we believe there continue to be attractive opportunities in the SFR sector given robust industry fundamentals driven by the continued strength in the U.S. residential housing market. As of December 31, 2021, our SFR portfolio consisted of approximately 2,551 units with an aggregate carrying value of $579.6 million, up from 257 units with an aggregate carrying value of $41.3 million as of December 31, 2020. During the year ended December 31, 2021 and 2020, we acquired approximately 2,294 and 257 SFR units, respectively.

Our ability to identify and acquire properties that meet our investment criteria is impacted by property prices in our target markets, the inventory of properties available, competition for our target assets and our available capital. Properties added to our portfolio through traditional acquisition channels require expenditures in addition to payment of the purchase price, including property inspections, closing costs, liens, title insurance, transfer taxes, recording fees, broker commissions, property taxes and homeowners’ association (“HOA”) fees, when applicable. In addition, we typically incur costs to renovate a property acquired through traditional acquisition channels to prepare it for rental. Renovation work varies, but may include paint, flooring, cabinetry, appliances, plumbing hardware and other items required to prepare the property for rental. The time and cost involved to prepare our properties for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel and age and condition of the property. Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory.

Our revenues are derived primarily from rents collected from tenants for our SFR properties under lease agreements which typically have a term of one to two years. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality and tenant defaults, and the amount of time it takes to turn properties when tenants vacate.

Once a property is available for its initial lease, we incur ongoing property-related expenses, which consist primarily of property taxes, insurance, HOA fees (when applicable), utility expenses, repairs and maintenance, leasing costs, marketing expenses, and property administration. All of our SFR properties are managed through an external property manager. Prior to a property being rentable, certain of these expenses are capitalized as building and improvements. Once a property is rentable, expenditures for ordinary repairs and maintenance thereafter are expensed as incurred, and we capitalize expenditures that improve or extend the life of a property.

The following table summarizes certain key SFR property metrics as of December 31, 2021 (dollars in thousands):

90

[[GREPCENT_TABLE]]
[["","Number of SFR Properties","","% of Total SFR Properties","","Gross Book Value","","% of Total Gross Book Value","","Average Gross Book Value per Property","","Average Sq. Ft."],["Alabama","75","","","2.9","%","","$","13,517","","","2.3","%","","$","180","","","1,555"],["Arizona","52","","","2.0","%","","18,145","","","3.1","%","","349","","","1,527"],["Florida","619","","","24.3","%","","149,522","","","25.8","%","","242","","","1,442"],["Georgia","558","","","21.9","%","","116,437","","","20.1","%","","209","","","1,792"],["Indiana","97","","","3.8","%","","18,732","","","3.2","%","","193","","","1,592"],["Mississippi","96","","","3.8","%","","16,669","","","2.9","%","","174","","","1,658"],["Missouri","280","","","11.0","%","","50,437","","","8.7","%","","180","","","1,503"],["Nevada","66","","","2.6","%","","18,167","","","3.1","%","","275","","","1,400"],["North Carolina","289","","","11.3","%","","78,994","","","13.6","%","","273","","","1,488"],["Oklahoma","15","","","0.6","%","","3,040","","","0.5","%","","203","","","1,714"],["Tennessee","64","","","2.5","%","","20,314","","","3.5","%","","317","","","1,462"],["Texas","319","","","12.5","%","","72,560","","","12.5","%","","227","","","1,685"],["Other U.S.","21","","","0.8","%","","3,073","","","0.7","%","","146","","","1,568"],["Total/Average","2,551","","","100.0","%","","$","579,607","","","100.0","%","","$","228","","","1,582"]]
[[/GREPCENT_TABLE]]

Mortgage Loans Receivable

Through our wholly owned subsidiary Genesis, we specialize in originating and managing a portfolio of primarily short-term mortgage loans to fund single-family and multi-family real estate developers with construction, renovation and bridge loans.

Construction — Loans provided for ground-up construction, including mid-construction refinancing of ground-up construction, and the acquisition of such properties.

Renovation — Acquisition or refinance loans for properties requiring renovation, excluding ground-up construction.

Bridge — Loans for initial purchase, refinance of completed projects, or rental properties.

We currently finance construction, renovation and bridge loans using a warehouse credit facility but we expect to finance these loans with revolving securitization structures in the future.

Properties securing our loans are typically secured by a mortgage or a first deed of trust lien on real estate. Depending on loan type, the size of each loan committed is based on a maximum loan value in accordance with our lending policy. For construction and renovation loans, we generally use loan-to-cost (“LTC”) or loan-to-after-repair-value (“LTARV”) ratio. For bridge loans, we use a loan-to-value (“LTV”) ratio. LTC and LTARV are measured by the total commitment amount of the loan at origination divided by the total estimated cost of a project or value of a property after renovations and improvements to a property. LTV is measured by the total commitment amount of the loan at origination divided by the “as-complete” appraisal.

At the time of origination, the difference between the initial outstanding principal and the total commitment is the amount held back for future release subject to property inspections, progress reports and other conditions in accordance with the loan documents. Loan ratios described above do not reflect interim activity such as construction draws or interest payments capitalized to loans, or partial repayments of the loan.

Each loan is backed by a corporate or personal guarantee to provide further credit support for the loan. The guarantee may be collaterally secured by a pledge of the guarantor’s interest in the borrower or other real estate or assets owned by the guarantor.

Loan commitments at origination are typically interest only and bear a variable interest rate tied to either LIBOR or the SOFR plus a spread ranging from 3.8% to 8.6%, and have initial terms typically ranging from 6 to 36 months in duration based on the size of the project and expected timeline for completion of construction, which we often elect to extend for several months based on our evaluation of the project. As of December 31, 2021, the average commitment size of our loans was $1.375 million and the weighted average remaining term to contractual maturity of our loans was 7.7 months.

91

We typically receive loan origination fees, or “points” of up to 3.0% of the total commitment at origination, along with loan amendment and extension fees, each of which varies in amount based upon the term of the loan and the quality of the borrower and the underlying collateral. In addition, we charge fees on past due receivables and receive reimbursements from borrowers for costs associated with services provided by us, such as closing costs, collection costs on defaulted loans, and inspection fees.

Typical borrowers include real estate investors and developers. Loan proceeds are used to fund the construction, development, investment, land acquisition and refinancing of residential properties and to a lesser extent mixed-use properties. We also make loans to fund the renovation and rehabilitation of residential properties. Our loans are generally structured with partial funding at closing and additional loan installments disbursed to the borrower upon satisfactory completion of previously agreed stages of construction.

A principal source of new loans has been repeat business from our customers and their referral of new business. Our retention originations typically have lower customer acquisition costs than originations to new customers, positively impacting our profit margins.

As of December 31, 2021, we have loans in 29 states with the majority of loans located in California.

The following table summarizes certain information related to our mortgage loans receivable activity as of and for the year ended December 31, 2021:

[[GREPCENT_TABLE]]
[["Loans originated(A)","$","2,132,386"],["Loans repaid(A)(B)","$","1,451,633"],["Number of loans originated","2,276"],["Unpaid principal balance","$","1,473,894"],["Total commitment","$","2,013,307"],["Average total commitment","$","1,375"],["Weighted average contractual interest(C)","7.2","%"]]
[[/GREPCENT_TABLE]]

(A)Loan originations and advances, and repayments from December 20, 2021 to December 31, 2021 was $73.0 million and $60.9 million, respectively.

(B)Based on commitment.

(C)Excludes loan fees and based on commitment at funding.

The following table summarizes our total mortgage loans receivable portfolio by loan purpose as of December 31, 2021:

[[GREPCENT_TABLE]]
[["","","Number of Loans","","%","","Total Commitment","","%","","Weighted Average Committed Loan Balance to Value(A)"],["Construction","","486","","","33.2","%","","$","1,082,893","","","53.8","%","","75.6% / 65.0%"],["Bridge","","632","","","43.2","%","","700,437","","","34.8","%","","73.8","%"],["Renovation","","346","","","23.6","%","","229,977","","","11.4","%","","78.5% / 67.1%"],["","","1,464","","","100.0","%","","$","2,013,307","","","100.0","%"]]
[[/GREPCENT_TABLE]]

(A)Weighted by commitment LTV for bridge loans and LTC or LTARV for construction and renovation loans.

The following table summarizes our total mortgage loans receivable portfolio by geographic location as of December 31, 2021:

[[GREPCENT_TABLE]]
[["","","Number of Loans","","%","","Total Commitment","","%"],["California","","640","","","43.7","%","","$","1,186,460","","","58.9","%"],["Washington","","151","","","10.3","%","","245,496","","","12.2","%"],["New York","","36","","","2.5","%","","112,846","","","5.6","%"],["Other U.S.","","637","","","43.5","%","","468,505","","","23.3","%"],["","","1,464","","","100.0","%","","$","2,013,307","","","100.0","%"]]
[[/GREPCENT_TABLE]]

TAXES

92

We have elected to be treated as a REIT for U.S. federal income tax purposes. As a REIT we generally pay no federal or state and local income tax on assets that qualify under the REIT requirements if we distribute out at least 90% of the current taxable income generated from these assets.

We hold certain assets, including Servicer Advance Investments and MSRs, in taxable REIT subsidiaries (“TRSs”) that are subject to federal, state and local income tax because these assets either do not qualify under the REIT requirements or the status of these assets is uncertain. We also operate our securitization program, servicing, origination, and service 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.

As of December 31, 2021, we recorded a deferred tax liability of $440.7 million, including $281.5 million of deferred tax liability recorded as part of the purchase price allocation related to the Caliber acquisition (Note 3). Our net deferred tax liability of $440.7 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 within taxable entities.

For the year ended December 31, 2021, we recognized deferred tax expense (benefit) of $151.2 million 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.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Company’s accounting policies are more fully described in Note 2 of the Consolidated Financial Statements. As disclosed in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 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 December 31, 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.

MSRs and MSR Financing Receivables

Classification and valuation — An MSR can be created or acquired through a variety of means, including explicitly through a contract or implicitly through the origination and sale of a loan with servicing retained. As an approved owner of MSRs, we account for our MSRs as servicing assets or servicing liabilities as we have undertaken an obligation to service financial assets. We measure our MSRs at fair value at acquisition and elect to subsequently measure at fair value at each reporting date using the fair value measurement method. Our MSRs are categorized as Level 3 under the GAAP fair value hierarchy, as described in Note 14 to our Consolidated Financial Statements. The inputs used in the valuation of MSRs include prepayment rate, delinquency rate, recapture rate, mortgage servicing amount, discount rate, and estimated market level future costs to service. These inputs are primarily based on current market data obtained from servicers and other third parties, which may be adjusted based on our expectations for the future, and requires significant judgement. The determination of estimated cash flows used in pricing models is inherently subjective and imprecise. The methods used to estimate fair value may not result in an amount that is indicative of net realizable value or reflective of future fair values. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in fair value.

In order to evaluate the reasonableness of our fair value determinations, we engage an independent valuation firm to separately measure the fair value of our MSRs. The independent valuation firm determines an estimated fair value range based on its own models. We compare the range provided by the independent valuation firm to the values generated by our internal models. To date, we have not made any significant valuation adjustments as a result of the values provided by the third-party valuation adjustments.

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In certain cases, we have legally purchased MSRs or the right to the economic interest in MSRs, however, we determined that the respective purchase agreement would not be treated as a sale under GAAP. Therefore, rather than recording an investment in MSRs, we have recorded an investment in MSR financing receivables. Income from this investment (net of subservicing fees) is recorded as interest income and is grouped and presented as part of Servicing Revenue, Net in the Consolidated Statements of Income. Additionally, we elected to measure MSR Financing Receivables at fair value, with changes in fair value flowing through Servicing Revenue, Net in the Consolidated Statements of Income. In order to evaluate the reasonableness of our fair value determinations, similar to MSRs, we engage an independent valuation firm to separately measure the fair value of our MSR Financing Receivables.

Revenue and interest income recognition — We recognize income from investment in MSRs and MSR Financing Receivables as Servicing Revenue, Net which comprises (i) income from the MSRs, plus or minus (ii) the mark-to-market on the MSRs including change in fair value due to realization of cash flows.

Servicer Advance Investments

Classification and valuation — We have elected to account for the Servicer Advance Investments at fair value. Accordingly, we estimate the fair value of the Servicer Advance Investments at each financial reporting date and reflect changes in the fair value of the Servicer Advance Investments as gains or losses.

We categorize Servicer Advance Investments under Level 3 of the GAAP hierarchy because we use internal pricing models to estimate the future cash flows related to the Servicer Advance Investments that incorporate significant unobservable inputs and include assumptions that are inherently subjective and imprecise. In order to evaluate the reasonableness of our fair value determinations, we engage an independent valuation firm to separately measure the fair value of our Servicer Advance Investments. The independent valuation firm determines an estimated fair value range based on its own models.

Our estimations of future cash flows include the combined cash flows of all of the components that comprise the Servicer Advance Investments: existing advances, the requirement to purchase future advances and the right to the basic fee component of the related MSR. The factors that most significantly impact the fair value include (i) the rate at which the servicer advance balance declines, (ii) the duration of outstanding servicer advances, which we estimate is approximately nine months on average for an advance balance at a given point in time (not taking into account new advances made with respect to the pool), and (iii) the UPB of the underlying loans with respect to which we have the obligation to make advances and own the basic fee component.

Interest income and expense recognition — We recognize income from Servicer Advance Investments in the form of interest income. Interest income is calculated using the interest method, with adjustments to the yield applied based upon changes in actual or expected cash flows under the retrospective method. The servicer advances are not interest-bearing, but we accrete the effective rate of interest applied to the aggregate cash flows from the servicer advances and the basic fee component of the related MSR.

We remit to our servicers a portion of the basic fee component of the MSR related to our Servicer Advance Investments as compensation for acting as servicer, as described in more detail under “—Our Portfolio—Servicing Related Assets—Servicer Advances.” Our interest income is recorded net of the servicing fees owed to our servicers.

Real Estate and Other Securities

Classification and valuation — Our securities portfolio primarily consists of Agency and Non-Agency RMBS. Agency RMBS are securities issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae. Non-Agency RMBS are not issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae and are therefore subject to credit risk. RMBS investments are classified as either available-for-sale or accounted for under the fair value option. We determine the appropriate classification of our securities at the time they are acquired and evaluate the appropriateness of such classifications at each balance sheet date. If classified as available-for-sale, investments are carried at fair value, with net unrealized gains or losses reported as a component of accumulated other comprehensive income. If classified under the fair value option, changes in fair value are recorded in the Consolidated Statements of Income as a component of Change in Fair Value of Investments.

We generally categorize Agency RMBS under Level 2 and Non-Agency as Level 3 of the GAAP hierarchy. We estimate the fair value of the majority of our RMBS based upon broker quotations, counterparty quotations or pricing service quotations. Pricing services generally develop their pricing of RMBS based on transaction prices of recent trades for similar financial instruments, when available. When recent trades for similar financial instruments are not available, cash flow models or other

94

pricing models are used. The significant inputs used in the valuation of our securities include the discount rate, prepayment rates, default rates and loss severities, as well as other variables.

The determination of estimated cash flows used in pricing models is inherently subjective and imprecise. The methods used to estimate fair value may not be indicative of net realizable value or reflective of future fair values. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in fair value.

Impairment — Periods after January 1, 2020 — For periods subsequent to the application of ASU 2016-13, Financial Instruments - Credit Losses (“CECL”), we evaluate the cost basis of investments in securities not accounted for under the fair value option on at least a quarterly basis under ASC 326-30, Financial Instruments-Credit Losses: Available-for-Sale Debt Securities. When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security's cost basis is considered impaired. We must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors. In our assessment of whether a credit loss exists, we compare the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security. The estimated future cash flows reflect those that a “market participant” would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well incorporating observations of current market developments and events. Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income. If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in Provision (Reversal) for Credit Losses on Securities in the Consolidated Statements of Income. If it is determined as of the financial reporting date that all or a portion of a security's cost basis is not collectible, then we will recognize a realized loss to the extent of the adjustment to the security's cost basis. This adjustment to the amortized cost basis of the security is reflected in Gain (Loss) on Settlement of Investments, Net in the Consolidated Statements of Income.

Periods prior to January 1, 2020 — We must assess whether unrealized losses on securities, if any, reflect a decline in value that is other-than-temporary and, if so, record an other-than-temporary impairment through earnings. A decline in value is deemed to be other-than-temporary if (i) it is probable that we will be unable to collect all amounts due according to the contractual terms of a security that was not impaired at acquisition (there is an expected credit loss), or (ii) if we have the intent to sell a security in an unrealized loss position or it is more likely than not that we will be required to sell a security in an unrealized loss position prior to its anticipated recovery (if any). For the purposes of performing this analysis, we will assume the anticipated recovery period is until the expected maturity of the applicable security. Also, for securities that represent beneficial interests in securitized financial assets within the scope of ASC 325-40, whenever there is a probable adverse change in the timing or amounts of estimated cash flows of a security from the cash flows previously projected, an other-than-temporary impairment will be deemed to have occurred. Our Non-Agency RMBS acquired with evidence of deteriorated credit quality for which it was probable, at acquisition, that we would be unable to collect all contractually required payments receivable, fall within the scope of ASC 310-30, as opposed to ASC No. 325-40. All of our other Non-Agency RMBS, those not acquired with evidence of deteriorated credit quality, fall within the scope of ASC 325-40.

Interest income recognition — There are several different accounting models that may be applicable for purposes of the recognition of interest income on RMBS depending on whether the security is designated as available-for-sale or fair value option.

The following accounting models apply to RMBS classified as available-for-sale:

(i) RMBS of high credit quality rated ‘AA’ or higher that, at the time of purchase, we expect to collect all contractual cash flows and the security cannot be contractually prepaid in such a way that we would not recover substantially all of our recorded investment.

(ii) Non-Agency RMBS which are not of high credit quality at the time of purchase or that can be contractually prepaid or otherwise settled in such a way that we would not recover substantially all of our recorded investment.

For RMBS of high credit quality accounted for under (i) above, we recognize interest income by applying the permitted “interest method,” whereby purchase premiums and discounts are amortized and accreted, respectively, as an adjustment to contractual interest income accrued at each security’s stated coupon rate. The interest method is applied at the individual security level based upon each security’s effective interest rate. We calculate each security’s effective interest rate at the time of purchase by solving for the discount rate that equates the present value of that security's remaining contractual cash flows (assuming no principal prepayments) to its purchase price. Because each security’s effective interest rate does not reflect an estimate of future prepayments, we refer to this manner of applying the interest method as the “contractual effective interest

95

method.” When applying the contractual effective interest method to its investments in RMBS, as principal prepayments occur, a proportional amount of the unamortized premium or discount is recognized in interest income such that the contractual effective interest rate on the remaining security balance is unaffected.

For Non-Agency RMBS accounted for under (ii) above, we recognize interest income by applying the required prospective level-yield methodology. Interest income under this methodology is impacted by management judgments around both the amount and timing of credit losses (defaults) and prepayments. Consequently, interest income on these Non-Agency RMBS is recognized based on the timing and amount of cash flows expected to be collected, as opposed to being based on contractual cash flows. These securities are generally purchased at a discount to the principal amount. At the original acquisition date, we estimate the timing and amount of cash flows expected to be collected and calculate the present value of those amounts to our purchase price. In each subsequent balance sheet date, we revise our estimates of the remaining timing and amount of cash flows expected to be collected. If there is a positive change in the amount and timing of future cash flows expected to be collected from the previous estimate, the effective interest rate in future accounting periods may increase resulting in an increase in the reported amount of interest income in future periods. A positive change in the amount and timing of future cash flows expected to be collected is considered to have occurred when the net present value of future cash flows expected to be collected has increased from the previous estimate. This can occur from a change in either the timing of when cash flows are expected to be collected (i.e., from changes in prepayment speeds or the timing of estimated defaults) or in the amount of cash flows expected to be collected (i.e., from reductions in estimates of future defaults). If there is a negative or adverse change in the amount and timing of future cash flows expected to be collected from the previous estimate, and the security's fair value is below its amortized cost, an impairment loss equal to the adverse change in cash flows expected to be collected, discounted using the security's effective rate before impairment, is required to be recorded in current period earnings. Additionally, while the effective interest rate used to accrete interest income after an impairment has been recognized will generally be the same, the amount of interest income recorded in future periods will decline because of the reduced balance of the amortized cost basis of the investment to which such effective interest rate is applied.

The following accounting models apply to RMBS accounted for under the fair value option:

(iii) RMBS of high credit quality rated ‘AA’ or higher that, at the time of purchase, we expect to collect all contractual cash flows and the security cannot be contractually prepaid in such a way that we would not recover substantially all of our recorded investment.

(iv) Non-Agency RMBS which are not of high credit quality at the time of purchase or that can be contractually prepaid or otherwise settled in such a way that we would not recover substantially all of our recorded investment.

Interest income on RMBS accounted for in (iii) above is recognized based on the stated coupon rate and the outstanding principal amount. The original purchase premium or discount is not amortized or accreted as part of interest income but rather reflected as part of the security’s fair value.

Interest income on Non-Agency RMBS accounted for in (iv) above is recognized in accordance with the model described in (ii) above.

Residential Mortgage Loans

Classification and valuation — Loans are classified as (i) held-for-investment at fair value, (ii) held-for-sale at fair value or (iii) held-for-sale at lower of cost or fair value. Loans are also eligible to be accounted for under the fair value option which are recorded on the Consolidated Balance Sheets at fair value and the periodic changes in fair value is recorded as a component of Change in Fair Value of Investments in the Consolidated Statements of Income. When we have the intent and ability to hold loans for the foreseeable future or to maturity/payoff, such loans are classified as held for investment. When we have the intent to sell loans, such loans are classified as held for sale.

Our loans are generally categorized as Level 3 under the GAAP fair value hierarchy, as described in Note 14 to our Consolidated Financial Statements. The fair value of loans is affected by, among other things, changes in interest rates, credit performance, prepayments, and market liquidity. To the extent interest rates change or market liquidity and or credit conditions materially change, the value of these loans could decline, which could have a material effect on reported earnings.

For originated residential mortgage loans measured at fair value, the fair value is generally determined using a market approach by utilizing either (i) the fair value of securities backed by similar residential mortgage loans, adjusted for certain factors to approximate the fair value of a whole residential mortgage loan, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics.

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For acquired residential mortgage loans measured at fair value, the fair value is generally determined by discounting the expected future cash flows using inputs such as default rates, prepayment speeds and discount rates.

For loans measured at the lower of cost or fair value, we account for any excess of cost over fair value as a valuation allowance and include changes in the valuation allowance in in the period in which the change occurs. Purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred discounts or premiums are an adjustment to the basis of the loan and are included in the quarterly determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.

Interest income recognition — Interest earned on residential mortgage loans measured at fair value are reported in Interest Income in the Consolidated Statements of Income.

Impairment — Subsequent to the adoption of CECL on January 1, 2020, all residential mortgage loans are carried at fair value or the lower of cost or fair value. As a result, these loans are not subject to an allowance for credit losses under the CECL impairment model.

A loan is determined to be past due when a monthly payment is due and unpaid for 30 days or more. Loans, other than PCD loans, are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Loans held-for-sale are subject to the nonaccrual policy. A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan. Our ability to recognize interest income on nonaccrual loans as cash interest payments are received rather than as a reduction of the carrying value of the loans is based on the recorded loan balance being deemed fully collectible.

Business Combinations and Asset Acquisitions

When the assets acquired and liabilities assumed constitute a business, then the acquisition is a business combination. If substantially all of the fair value of the gross asset acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset is not considered a business. Business combinations are accounted for under the acquisition method. On acquisition, the identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of

acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. In instances where the cost of acquisition is lower than the fair values of the identifiable net assets acquired (i.e., bargain purchase), the difference is recognized in earnings in the period of acquisition. The consideration transferred for an acquisition is measured at fair value of the consideration given. Acquisition related costs are expensed as incurred. The results of operations of acquired businesses are included from the date of acquisition.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we will recognize a measurement-period adjustment during the period in which we determine the amount of the adjustment, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date.

Investment Consolidation

Variable interest entities (“VIEs”) are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered are the determination as to the degree of control over an entity by its various equity holders, the design of the entity, how closely related the entity is to each of its equity holders, the relation of the equity holders to each other and a determination of the primary beneficiary in entities in which we have a variable interest. These analyses involve estimates, based on our assumptions, as well as judgments regarding significance and the design of entities.

For additional information on VIEs, see “Item 8. Consolidated Financial Statements—Note 15. Variable Interest Entities.”

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Income Taxes

We intend to operate in a manner that allows us to qualify for taxation as a REIT. As a result of our expected REIT qualification, we do not generally expect to pay U.S. federal or state and local corporate level taxes on income earned outside of our Taxable REIT Subsidiaries (“TRSs”). Many of the REIT requirements, however, are highly technical and complex. If we were to fail to meet the REIT requirements, we would be subject to U.S. federal, state and local income and franchise taxes, and we would face a variety of adverse consequences. See “Risk Factors—Risks Related to Our Taxation as a REIT.” New Residential operates various business segments, including servicing, origination, and MSR related investments, through TRSs that are subject to regular corporate income taxes.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to our Consolidated Financial Statements.

Accounting Impact of Valuation Changes

New Residential’s assets fall into three general categories as disclosed in the table below. These categories are:

Marked to Market Assets (“MTM Assets”) — Assets that are marked to market through the Consolidated Statements of Income. Changes in the value of these assets (i) are recorded in the Consolidated Statement of Income, as unrealized gains or losses that impact net income, and (ii) impact our Total New Residential Stockholders’ Equity (net book value).

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

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

An exception to these descriptions results from changes in value that represent impairment. Any such change (i) is recorded in the Consolidated Statements of Income, as impairment that impacts net income, and (ii) impacts our Total New Residential Stockholders’ Equity (net book value). In the case of Residential Mortgage Loans, Held-for-Sale, at Lower of Cost or Fair Value, any reductions in value are considered impairment. Impairment on loans and REO as well as securities subsequent to the adoption of CECL on January 1, 2020 is subject to reversal if values subsequently increase.

All of New Residential’s liabilities, with the exception of derivatives, residential mortgage loan repurchase liability, certain debt accounted for under the fair value option and contingent consideration liabilities (which are marked to market through the Consolidated Statements of Income), are recorded at their amortized cost basis.

The table below summarizes New Residential’s assets by category as of December 31, 2021:

[[GREPCENT_TABLE]]
[["MTM Assets","","OCI Assets","","Cost Assets"],["Real estate and other securities accounted for under the fair value option","","Real estate and other securities, available-for-sale","","Residential mortgage loans, held-for-sale, at lower of cost or fair value"],["Excess MSRs","","","","Single-family rental properties"],["Excess MSRs, equity method investees","","","","Real estate owned (REO)"],["MSRs and MSR financing receivables","","","","Servicer advances receivable"],["Servicer advance investments","","","","Trades receivable"],["Certain assets within Other assets, primarily derivatives and equity investments","","","","Deferred tax asset, net"],["Residential mortgage loans, held-for-sale at fair value","","","","Other assets, except as described above"],["Residential mortgage loans, held-for-investment, at fair value"],["Consumer loans"],["Mortgage loans receivable"]]
[[/GREPCENT_TABLE]]

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RESULTS OF OPERATIONS

The following tables summarize the changes in our results of operations for the year ended December 31, 2021 compared to 2020 year-to-year (dollars in thousands). Our results of operations are not necessarily indicative of our future performance.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Revenues"],["Servicing fee revenue, net and interest income from MSRs and MSR financing receivables","$","1,559,554","","","$","1,642,272","","","$","(82,718)","","","(5.0)","%"],["Change in fair value of MSRs and MSR financing receivables (includes realization of cash flows of $(1,192,646) and $(1,583,628), respectively)","(575,353)","","","(2,168,909)","","","1,593,556","","","(73.5)","%"],["Servicing revenue, net","984,201","","","(526,637)","","","1,510,838","","","(286.9)","%"],["Interest income","810,896","","","794,965","","","15,931","","","2.0","%"],["Gain on originated residential mortgage loans, held-for-sale, net","1,826,909","","","1,399,092","","","427,817","","","30.6","%"],["","3,622,006","","","1,667,420","","","1,954,586","","","117.2","%"],["Expenses"],["Interest expense and warehouse line fees","497,308","","","584,469","","","(87,161)","","","(14.9)","%"],["General and administrative","864,028","","","548,441","","","315,587","","","57.5","%"],["Compensation and benefits","1,159,810","","","571,646","","","588,164","","","102.9","%"],["Management fee to affiliate","95,926","","","89,134","","","6,792","","","7.6","%"],["","2,617,072","","","1,793,690","","","823,382","","","45.9","%"],["Other income (loss)"],["Change in fair value of investments","11,723","","","(148,758)","","","160,481","","","(107.9)","%"],["Gain (loss) on settlement of investments, net","(234,561)","","","(930,131)","","","695,570","","","(74.8)","%"],["Other income (loss), net","133,968","","","(11,997)","","","145,965","","","n/m"],["","(88,870)","","","(1,090,886)","","","1,002,016","","","(91.9)","%"],["Impairment"],["Provision (reversal) for credit losses on securities","(5,201)","","","13,404","","","(18,605)","","","(138.8)","%"],["Valuation and credit loss provision (reversal) on loans and real estate owned","(42,543)","","","110,208","","","(152,751)","","","(138.6)","%"],["","(47,744)","","","123,612","","","(171,356)","","","(138.6)","%"],["Income (loss) before income taxes","963,808","","","(1,340,768)","","","2,304,576","","","(171.9)","%"],["Income tax expense (benefit)","158,226","","","16,916","","","141,310","","","835.4","%"],["Net income (loss)","$","805,582","","","$","(1,357,684)","","","$","2,163,266","","","(159.3)","%"],["Noncontrolling interests in income of consolidated subsidiaries","33,356","","","52,674","","","(19,318)","","","(36.7)","%"],["Dividends on preferred stock","66,744","","","54,295","","","12,449","","","22.9","%"],["Net income (loss) attributable to common stockholders","$","705,482","","","$","(1,464,653)","","","$","2,170,135","","","(148.2)","%"]]
[[/GREPCENT_TABLE]]

Percentage changes in the table above deemed “n/m” are not meaningful.

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Servicing Revenue, Net

Servicing Revenue, Net consists of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Servicing fee revenue, net and interest income from MSRs and MSR financing receivables","$","1,446,509","","","$","1,457,211","","","$","(10,702)","","","(0.7)","%"],["Ancillary and other fees","113,045","","","185,061","","","(72,016)","","","(38.9)","%"],["Servicing fee revenue and fees","1,559,554","","","1,642,272","","","(82,718)","","","(5.0)","%"],["Change in fair value due to:"],["Realization of cash flows","(1,192,646)","","","(1,583,628)","","","390,982","","","(24.7)","%"],["Change in valuation inputs and assumptions(A)","680,088","","","(585,928)","","","1,266,016","","","(216.1)","%"],["Change in fair value of derivative instruments","(30,481)","","","\u2014","","","(30,481)","","","\u2014","%"],["(Gain) loss realized","2,410","","","647","","","1,763","","","272.5","%"],["Gain (loss) on settlement of derivative instruments","(34,724)","","","\u2014","","","(34,724)","","","\u2014","%"],["Servicing revenue, net","$","984,201","","","$","(526,637)","","","$","1,510,838","","","(286.9)","%"]]
[[/GREPCENT_TABLE]]

(A)The following table summarizes the components of servicing revenue, net related to changes in valuation inputs and assumptions:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Changes in interest rates and prepayment rates","$","544,706","","","$","(544,340)","","","$","1,089,046","","","(200.1)","%"],["Changes in discount rates","113,305","","","9,245","","","104,060","","","1125.6","%"],["Changes in other factors","22,077","","","(50,833)","","","72,910","","","(143.4)","%"],["Change in valuation and assumptions","$","680,088","","","$","(585,928)","","","$","1,266,016","","","(216.1)","%"]]
[[/GREPCENT_TABLE]]

The table below summarizes the unpaid principal balances of our MSRs and MSR Financing Receivables:

[[GREPCENT_TABLE]]
[["","Unpaid Principal Balance","","Increase (Decrease)"],["(dollars in millions)","December 31, 2021","","December 31, 2020","","Amount","","%"],["GSE","$","374,815.6","","","$","305,718.6","","","$","69,097.0","","","22.6","%"],["Non-Agency","63,851.1","","","72,610.4","","","(8,759.3)","","","(12.1)","%"],["Ginnie Mae","109,946.4","","","57,106.8","","","52,839.6","","","92.5","%"],["Total","$","548,613.1","","","$","435,435.8","","","$","113,177.3","","","26.0","%"]]
[[/GREPCENT_TABLE]]

Servicing revenue, net increased $1.5 billion primarily driven by (i) a $1.3 billion net change from negative to positive fair value adjustments from changes in valuation inputs and assumptions related to slower projected prepayment rates, lower delinquency rates, and a decrease in discount rates, and (ii) a $391.0 million decrease in realization of cash flows as a result of slower prepayment rates. The increase was partially offset by (iii) an $82.7 million decrease in servicing fee revenue, net and other fees driven by lower interest rates and portfolio runoff, offset by increases from the third quarter Caliber acquisition, and (iv) a $65.2 million loss from MSR hedges.

Interest Income

Interest income for the year ended December 31, 2021 increased $15.9 million primarily driven by (i) a $119.3 million increase in our origination segment associated with higher funded loan volumes in 2021, partially offset by (ii) $128.9 million of lower interest income across our RMBS, consumer loans, and whole loans attributable to an aggregate smaller weighted average portfolio.

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Gain on Originated Residential Mortgage Loans, Held-for-Sale, Net

The following table provides information regarding Gain on Originated Residential Mortgage Loans, Held-for-Sale, Net as a percentage of pull through adjusted lock volume, by channel:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020"],["Direct to Consumer","3.97","%","","3.61","%"],["Retail / Joint Venture","3.66","%","","4.57","%"],["Wholesale","1.09","%","","2.38","%"],["Correspondent","0.28","%","","0.56","%"],["","1.51","%","","1.85","%"]]
[[/GREPCENT_TABLE]]

The following table summarizes funded loan production by channel:

[[GREPCENT_TABLE]]
[["","Unpaid Principal Balance for the Year Ended December 31,","","Increase (Decrease)"],["(in millions)","2021","","% of Total","","2020","","% of Total","","Amount","","%"],["Production by Channel"],["Direct to Consumer","$","25,182","","20%","","$","12,847","","21%","","$","12,335","","","96","%"],["Retail / Joint Venture","16,781","","14%","","3,999","","6%","","12,782","","","320","%"],["Wholesale","16,189","","13%","","7,223","","12%","","8,966","","","124","%"],["Correspondent","65,136","","53%","","37,535","","61%","","27,601","","","74","%"],["Total Production by Channel","$","123,288","","100%","","$","61,604","","100%","","$","61,684","","100","%"]]
[[/GREPCENT_TABLE]]

Gain on originated residential mortgage loans, held-for-sale, net increased primarily due to higher fund loan volumes across all channels as well as the addition of Caliber during the third quarter. For the year ended December 31, 2021, loan origination volume was $123.3 billion, up from $61.6 billion in the prior year.

Interest Expense and Warehouse Line Fees

Interest expense decreased $87.2 million during the year ended December 31, 2021 primarily driven by (i) a $133.6 million decrease in interest expense on our Agency, Non-Agency, residential mortgage loan and consumer loan portfolios, partially offset by (iii) a $44.1 million increase in interest expense in our servicing segment largely driven by the value of our financed MSR portfolio, including the Caliber acquisition completed in the third quarter of 2021.

General and Administrative

General and Administrative expenses consists of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Legal and professional","$","102,114","","","$","70,502","","","$","31,612","","","44.8","%"],["Loan origination","196,989","","","92,081","","","104,908","","","113.9","%"],["Occupancy","70,616","","","36,799","","","33,817","","","91.9","%"],["Subservicing","224,138","","","201,444","","","22,694","","","11.3","%"],["Loan servicing","16,440","","","14,126","","","2,314","","","16.4","%"],["Property and maintenance","69,083","","","42,508","","","26,575","","","62.5","%"],["Other","184,648","","","90,981","","","93,667","","","103.0","%"],["Total general and administrative expenses","$","864,028","","","$","548,441","","","$","315,587","","","57.5","%"]]
[[/GREPCENT_TABLE]]

101

General and administrative expenses increased $315.6 million year over year, with the Caliber acquisition contributing approximately $142.0 million of the total increase. The remainder of the increase was largely driven by higher funded loan volumes, as well as an increase of $26.6 million in property and maintenance expense.

Compensation and Benefits

Compensation and benefits increased $588.2 million year over year, with the Caliber acquisition contributing a majority of the total increase and the remainder driven by higher loan volumes during 2021. Total headcount at December 31, 2021 was 12,296 employees, up from 5,667 at December 31, 2020. The Caliber acquisition added over 7,000 employees.

Management Fee to Affiliate

Management fee to affiliate increased $6.8 million as a result of capital raises during 2021. Refer to the “Capital Activities” section for further discussion regarding capital raises.

Change in Fair Value of Investments

Change in Fair Value of Investments consists of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Excess MSRs","$","(15,078)","","","$","(16,232)","","","$","1,154","","","(7.1)","%"],["Excess MSRs, equity method investees","1,818","","","(3,489)","","","5,307","","","(152.1)","%"],["Servicer advance investments","(9,076)","","","763","","","(9,839)","","","n/m"],["Real estate and other securities","(400,369)","","","28,455","","","(428,824)","","","n/m"],["Residential mortgage loans","155,758","","","(107,604)","","","263,362","","","(244.8)","%"],["Consumer loans","(20,133)","","","2,816","","","(22,949)","","","(815.0)","%"],["Derivative instruments","298,803","","","(53,467)","","","352,270","","","(658.9)","%"],["Change in fair value of investments","$","11,723","","","$","(148,758)","","","$","160,481","","","(107.9)","%"]]
[[/GREPCENT_TABLE]]

Percentage changes in the table above deemed “n/m” are not meaningful.

Change in Fair Value of Excess MSRs

Change in fair value of excess mortgage servicing rights increased $6.5 million driven by changes in valuation inputs and assumptions related to prepayment speeds.

Change in Fair Value of Servicer Advance Investments

Change in fair value of servicer advance investments decreased $9.8 million primarily driven by changes in valuation inputs and assumptions related to lengthening recovery timelines.

Change in Fair Value of Real Estate and Other Securities

Change in fair value of real estate securities decreased $428.8 million primarily due to a reduction in prices of Agency securities associated with higher interest rates. The decrease was partially offset by a $352.3 million increase in change in fair value of derivatives instruments noted below.

Change in Fair Value of Residential Mortgage Loans

Change in fair value of residential mortgage loans increased $263.4 million due to (i) a $384.4 million favorable change in inputs and assumptions attributable to the favorable economic outlook associated with COVID-19 and (ii) a $121.1 million increase in realization of gain through loan sales and securitizations, in turn reversing the unrealized gain position.

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Change in Fair Value of Derivative Instruments

Change in fair value of derivative instruments increased $352.3 million on interest rate swaps used to hedge our Agency RMBS portfolio due to favorable changes in inputs and assumptions driven by higher interest rates.

Gain (Loss) on Settlement of Investments, Net

Gain (Loss) on Settlement of Investments, Net consists of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Sale of real estate securities","$","(89,811)","","","$","(753,713)","","","$","663,902","","","(88.1)","%"],["Sale of acquired residential mortgage loans","120,680","","","(5,662)","","","126,342","","","n/m"],["Settlement of derivatives","(172,581)","","","(74,812)","","","(97,769)","","","130.7","%"],["Liquidated residential mortgage loans","(5,946)","","","4,644","","","(10,590)","","","(228.0)","%"],["Sale of REO","(6,622)","","","(21,925)","","","15,303","","","(69.8)","%"],["Extinguishment of debt","(1,485)","","","(66,233)","","","64,748","","","(97.8)","%"],["Other","(78,796)","","","(12,430)","","","(66,366)","","","533.9","%"],["","$","(234,561)","","","$","(930,131)","","","$","695,570","","","(74.8)","%"]]
[[/GREPCENT_TABLE]]

Percentage changes in the table above deemed “n/m” are not meaningful.

Loss on settlement of investments, net decreased $695.6 million for the year ended December 31, 2021 compared to 2020. The decrease is primarily due to Agency and Non-Agency RMBS portfolio sales in the second quarter of 2020. The 2020 sales were executed in order to generate liquidity and de-risk our balance sheet in response to the onset of COVID-19 related market factors, and we realized net losses of approximately $733.0 million on these sales. The remaining net favorable change in investment activity reflects (i) increases in realized gains from collapses and loan sale transactions during 2021 which contributed to the favorable change year over year, (ii) partially offset by a $97.8 million increase in net realized losses on settlement of derivatives, and (iii) a $66.6 million increase in realized losses associated with collapse loan purchases.

Other Income (Loss), Net

Other Income (Loss), Net consists of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Increase (Decrease)"],["","2021","","2020","","Amount","","%"],["Unrealized gain (loss) on secured notes and bonds payable","$","12,991","","","$","(966)","","","$","13,957","","","n/m"],["Unrealized gain (loss) on contingent consideration","(1,037)","","","(6,568)","","","5,531","","","(84.2)","%"],["Unrealized gain (loss) on equity investments","5,986","","","(54,455)","","","60,441","","","(111.0)","%"],["Gain (loss) on transfer of loans to REO","3,752","","","7,945","","","(4,193)","","","(52.8)","%"],["Gain (loss) on transfer of loans to other assets","(9)","","","(939)","","","930","","","(99.0)","%"],["Gain (loss) on Ocwen common stock","2,181","","","3,235","","","(1,054)","","","(32.6)","%"],["Provision for servicing losses","(41,038)","","","(15,330)","","","(25,708)","","","167.7","%"],["Bargain purchase gain","6,024","","","\u2014","","","6,024","","","n/m"],["Rental revenues","13,750","","","2,422","","","11,328","","","467.7","%"],["Ancillary income","53,358","","","22,987","","","30,371","","","132.1","%"],["Property and maintenance revenue","104,797","","","70,527","","","34,270","","","48.6","%"],["Other income (loss)","(26,787)","","","(40,855)","","","14,068","","","(34.4)","%"],["","$","133,968","","","$","(11,997)","","","$","145,965","","","n/m"]]
[[/GREPCENT_TABLE]]

Percentage changes in the table above deemed “n/m” are not meaningful.

Other income increased $146.0 million primarily due to (i) a $39.1 million unrealized loss on an equity investment in a commercial redevelopment project, which was recorded in the first quarter of 2020 and $12.5 million of lower losses associated with other equity investments throughout the year, (ii) a $34.3 million increase in property and maintenance revenue at Guardian Asset Management attributable to continued growth in operations, (iii) a $30.4 million increase in ancillary revenue

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from recovery income, (iv) a $11.3 million increased rent from single-family rental properties attributable to continued growth in our single-family rental business, (v) a $17.7 million favorable mark-to-market adjustment on an equity investment carried at fair value, (vi) a $14.0 million increase in favorable change in unrealized gain on secured notes and bonds payable, and (vii) a $6.0 million bargain purchase gain attributable to the Caliber acquisition, partially offset by (viii) a $25.7 million increase in provision for servicing losses.

Provision (Reversal) for Credit Losses on Securities

The reversal for credit losses on securities increased $18.6 million primarily due to an increase in fair values on Non-Agency RMBS purchased with existing credit impairment driven by improved economic conditions associated with COVID-19.

Valuation and Credit Loss Provision (Reversal) on Loans and Real Estate Owned

Valuation and credit loss provision on loans and real estate owned decreased $152.8 million primarily due to a $151.2 million decrease in impairment on residential mortgage loans attributable to improved economic conditions.

Income Tax Expense (Benefit)

Income tax expense increased $141.3 million primarily driven by current and deferred tax expense resulting from changes in the fair value of MSRs, loans, and swaps held within taxable entities as well as income generated by the origination and servicing segments. The prior year tax expense was largely driven by deferred tax benefits from changes in the fair value of loans and MSRs during the first quarter of 2020, partially offset by origination and servicing income in subsequent quarters.

Noncontrolling Interests in Income of Consolidated Subsidiaries

Noncontrolling interests in income of consolidated subsidiaries decreased by $19.3 million primarily attributable to (i) a $12.3 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 $4.3 million decrease from the Shelter JVs, and (iii) a $2.7 million decrease related to Advance Purchaser LLC.

Dividends on Preferred Stock

The following table summarizes preferred stock:

[[GREPCENT_TABLE]]
[["","","Number of Shares","","Dividends Declared Per Share and Amount"],["","","December 31,","","Year Ended December 31,"],["Series","","2021","","2020","","2021","","2020"],["Series A, 7.50% issued July 2019","","6,210","","","6,210","","","$","1.88","","","$","11,644","","","$","1.88","","","$","11,644"],["Series B, 7.125% issued August 2019","","11,300","","","11,300","","","1.78","","","20,128","","","1.78","","","20,128"],["Series C, 6.375% issued February 2020","","16,100","","","16,100","","","1.59","","","25,659","","","1.60","","","22,523"],["Series D, 7.00%, issued September 2021","","18,600","","","\u2014","","","0.72","","","9,313","","","\u2014","","","\u2014"],["Total","","52,210","","","33,610","","","$","5.97","","","$","66,744","","","$","5.26","","","$","54,295"]]
[[/GREPCENT_TABLE]]

Dividends on preferred stock increased $12.4 million to $66.7 million primarily due to the issuance of Preferred Series D shares in mid-September 2021.

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.

104

Our primary sources of funds are cash provided by operating activities (primarily income from loan origination and servicing), 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. Total cash and cash equivalents at December 31, 2021 was $1.3 billion compared to $0.9 billion at December 31, 2020.

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 of December 31, 2021, approximately $1.1 billion of our cash and cash equivalents was held at NRM, Newrez and Caliber, of which $0.9 billion was in excess of regulatory liquidity requirements. NRM, Newrez and Caliber are expected to maintain compliance with applicable 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 pursued in the past and may also pursue in the future one or more other sources of financing such as securitizations and other secured and unsecured forms of borrowing. As of December 31, 2021, we had outstanding secured financing agreements with an aggregate face amount of approximately $20.6 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 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, $4.5 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 the first quarter of 2020, it is possible that volatility may increase again due to the continued uncertainty brought about by the initial COVID-19 strain as well as its evolving variants, including the more transmissible Delta and Omicron variants. Consequently, 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

105

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.

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.

106

Debt Obligations

The following table summarizes information regarding our debt obligations (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","December 31, 2021","","December 31, 2020"],["","","","","","","","","","","","","","","Collateral"],["Debt Obligations/Collateral","","","","Outstanding Face Amount","","Carrying Value(A)","","Final Stated Maturity(B)","","Weighted Average Funding Cost","","Weighted Average Life (Years)","","Outstanding Face","","Amortized Cost Basis","","Carrying Value","","Weighted Average Life (Years)","","Carrying Value(A)"],["Secured Financing Agreements(C)"],["Repurchase Agreements:"],["Warehouse Credit Facilities-Residential Mortgage Loans(F)","","","","$","10,135,658","","","$","10,131,700","","","Feb-22 to Sep-25","","1.92","%","","0.7","","$","10,904,545","","","$","10,936,752","","","$","10,977,338","","","23.0","","$","4,039,564"],["Warehouse Credit Facility-Mortgage Loans Receivable(g)","","","","1,252,660","","","1,252,660","","","Dec-23","","2.15","%","","2.0","","1,473,894","","","1,473,894","","","1,515,762","","","1.3","","\u2014"],["Agency RMBS(D)","","","","8,386,538","","","8,386,538","","","Jan-22 to Apr-22","","0.16","%","","0.1","","8,396,800","","","8,661,005","","","8,442,009","","","6.9","","12,682,427"],["Non-Agency RMBS(E)","","","","656,874","","","656,874","","","Jan-22 to Aug-22","","2.43","%","","0.1","","13,370,966","","","869,226","","","924,948","","","3.3","","817,209"],["Other(G)(H)","","","","165,112","","","165,112","","","Mar-22 to Sep-25","","2.95","%","","1.0","","N/A","","234,501","","","230,062","","","4.4","","8,480"],["Total Secured Financing Agreements","","","","20,596,842","","","20,592,884","","","","","1.25","%","","0.6","","","","","","","","","","17,547,680"],["Secured Notes and Bonds Payable"],["Excess MSRs(I)","","","","237,835","","","237,835","","","Aug-25","","3.74","%","","3.7","","80,461,630","","","268,102","","","333,845","","","6.3","","275,088"],["MSRs(J)","","","","4,245,401","","","4,234,771","","","Mar-22 to Dec-26","","3.47","%","","3.3","","524,065,651","","","6,049,595","","","6,609,171","","","6.3","","2,691,791"],["Servicer Advance Investments(K)","","","","356,580","","","355,722","","","Apr-22 to Dec-22","","1.27","%","","0.9","","369,440","","","405,786","","","421,807","","","6.9","","423,144"],["Servicer Advances(K)","","","","2,362,080","","","2,355,969","","","Feb-22 to Nov-24","","2.19","%","","1.3","","2,812,974","","","2,855,148","","","2,855,148","","","0.7","","2,585,575"],["Residential Mortgage Loans(L)","","","","1,020,206","","","1,001,933","","","Mar-23 to Jul-43","","1.82","%","","3.2","","889,840","","","1,158,669","","","1,147,245","","","23.9","","1,039,838"],["Consumer Loans(M)","","","","454,542","","","458,580","","","Sep-37","","2.05","%","","8.6","","449,713","","","461,026","","","507,242","","","3.3","","628,759"],["Total Secured Notes and Bonds Payable","","","","8,676,644","","","8,644,810","","","","","2.77","%","","2.9","","","","","","","","","","7,644,195"],["Total/Weighted Average","","","","$","29,273,486","","","$","29,237,694","","","","","1.71","%","","1.3","","","","","","","","","","$","25,191,875"]]
[[/GREPCENT_TABLE]]

(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)Includes approximately $20.9 million of associated interest payable as of December 31, 2021.

(D)All fixed interest rates.

(E)All LIBOR-based floating interest rates.

(F)Includes $252.2 million which bear interest at a fixed interest rate of 4.0% with the remaining having LIBOR-based floating interest rates.

(G)All LIBOR-based floating interest rates.

(H)Includes $158.5 million of financing collateralized by a portion of our SFR portfolio as well as financing collateralized by REOs.

(I)Includes $237.8 million of corporate loans which bear interest at a fixed interest rate of 3.7%.

(J)Includes $1.9 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 2.5% to 4.5%; and $2.3 billion of capital market 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 securing these notes.

(K)$1.8 billion face amount of the notes has 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 3.5%. Collateral includes servicer advance investments, as well as servicer advances receivable related to the MSRs and MSR Financing Receivables owned by NRM.

(L)Represents (i) $27.6 million of SAFT 2013-1 mortgage-backed securities issued with fixed interest rate of 3.8%, (ii) $42.9 million of MDST Trusts asset-backed notes held by third parties which bear interest equal to 6.6%, (iii) a $199.7 million note payable collateralized by SFR properties with a fixed interest rate of 2.8%, and (iv) $750.0 million securitization backed by a revolving warehouse facility to finance newly originated first-lien, fixed- and adjustable-rate residential mortgage loans which bears interest equal to one-month LIBOR plus 1.1%.

(M)Includes the SpringCastle debt, comprising the following classes of asset-backed notes held by third parties: $401.5 million UPB of Class A notes with a coupon of 2.0% and a stated maturity date in September 2037 and $53.0 million UPB of Class B notes with a coupon of 2.7% and a stated maturity date in September 2037 (collectively, “SCFT 2020-A”).

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

107

We have margin exposure on $20.6 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 tables provide additional information regarding our short-term borrowings:

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31, 2021"],["","OutstandingBalance at December 31, 2021","","Average Daily Amount Outstanding(A)","","Maximum Amount Outstanding","","Weighted Average Daily Interest Rate"],["Secured Financing Agreements"],["Agency RMBS","$","8,386,538","","","$","11,691,649","","","$","18,667,907","","","0.19","%"],["Non-Agency RMBS","656,874","","","739,134","","","1,300,470","","","3.01","%"],["Residential mortgage loans","7,786,115","","","6,211,879","","","12,846,806","","","1.92","%"],["Real estate owned","6,595","","","5,609","","","6,621","","","2.60","%"],["Secured Notes and Bonds Payable"],["MSRs","487,000","","","265,146","","","716,360","","","3.41","%"],["Servicer advances","1,174,493","","","711,324","","","1,368,464","","","1.83","%"],["Total/Weighted Average","$","18,497,615","","","$","19,624,741","","","$","34,906,628","","","1.20","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Average Daily Amount Outstanding(A)"],["","Three Months Ended"],["","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021"],["Secured Financing Agreements"],["Agency RMBS","$","8,789,698","","","$","10,098,123","","","$","15,169,877","","","$","13,833,811"],["Non-Agency RMBS","711,931","","","715,802","","","724,014","","","806,260"],["Residential mortgage loans","8,497,137","","","4,879,365","","","4,622,809","","","4,552,293"],["Real estate owned","5,609","","","9,923","","","19,294","","","2,282"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Average Daily Amount Outstanding(A)"],["","Three Months Ended"],["","December 31, 2020","","September 30, 2020","","June 30, 2020","","March 31, 2020"],["Secured Financing Agreements"],["Agency RMBS","$","11,391,397","","","$","6,899,998","","","$","1,175,803","","","$","15,250,971"],["Non-Agency RMBS","447,824","","","1,459,942","","","2,092,963","","","7,216,191"],["Residential mortgage loans","3,655,906","","","3,112,376","","","3,180,499","","","4,869,240"],["Real estate owned","2,581","","","3,222","","","76,763","","","75,173"]]
[[/GREPCENT_TABLE]]

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

Corporate Debt

On May 19, 2020, we, as borrower, entered into a three-year senior secured term loan facility agreement (the “2020 Term Loan”) in the principal amount of $600.0 million at a fixed annual rate of 11.0%.

In conjunction with the issuance of the 2020 Term Loan, we issued warrants providing the lenders with the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of our common stock in the aggregate (the “2020 Warrants”). The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at any time or from time to time after September 19, 2020 at the following prices (subject to certain anti-dilution provisions): approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share. As of December 31, 2021, the weighted average exercise price was $6.49 per share.

108

On September 16, 2020, we, as borrower, completed a private offering of $550.0 million aggregate principal amount of 6.250% senior unsecured notes due 2020 (the “2025 Senior Notes”). Interest on the 2025 Senior Notes accrue at the rate of 6.250% per annum with interest payable semi-annually in arrears on each April 15 and October 15, commencing on April 15, 2021. Net proceeds from the offering were approximately $544.5 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by us. We used the net proceeds from the offering, together with cash on hand, to prepay and retire our then-existing 2020 Term Loan and to pay related fees and expenses. As a result, we recorded a $61.1 million loss on extinguishment of debt, representing a write-off of unamortized debt issuance costs and original issue discount.

The 2025 Senior Notes mature on October 15, 2025 and we may redeem some or all of the 2025 Senior Notes at our option, at any time from time to time, on or after October 15, 2022 at a price equal to the following fixed redemption prices (expressed as a percentage of principal amount of the 2025 Senior Notes to be redeemed):

[[GREPCENT_TABLE]]
[["Year","","Price"],["2022","","103.125%"],["2023","","101.563%"],["2024 and thereafter","","100.000%"]]
[[/GREPCENT_TABLE]]

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

We may from time to time seek to repurchase our outstanding 2025 Senior Notes, through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

For additional information on our debt activities, see Note 13 to our Consolidated Financial Statements.

Repurchase Agreements

New Residential has outstanding repurchase agreements with terms that generally conform to the terms of the standard master repurchase agreement published by the Securities Industry and Financial Markets Association as to repayment, margin requirements and segregation of all securities sold under any repurchase transactions. In addition, each counterparty typically requires additional terms and conditions to the standard master repurchase agreement, including changes to the margin maintenance requirements, required haircuts, purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction and cross default provisions. These provisions may differ by counterparty and are not determined until New Residential engages in a specific repurchase transaction.

Servicer Advance Notes Payable (the “Servicer Advance Notes”)

Following their revolving period, principal will be paid on the Servicer Advance Notes to the extent of available funds and in accordance with the priorities of payments set forth in the related transaction documents. The following table sets forth information regarding these revolving periods as of December 31, 2021 (dollars in thousands):

[[GREPCENT_TABLE]]
[["Servicer Advance Note Amount","","Revolving Period Ends(A)"],["$","370,430","","","April 2022"],["7,052","","","August 2022"],["300,000","","","October 2022"],["300,000","","","December 2022"],["180,352","","","April 2023"],["600,000","","","August 2023"],["600,000","","","September 2023"],["$","2,357,834"]]
[[/GREPCENT_TABLE]]

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

109

Upon the occurrence of an early amortization event or a target amortization event, there is either an interest rate increase on the Servicer Advance Notes, a rapid amortization of the Servicer Advance Notes or an acceleration of principal repayment, or all of the foregoing.

The early amortization and target amortization events under the Servicer Advance Notes include (i) the occurrence of an event of default under the transaction documents, (ii) failure to satisfy an interest coverage test, (iii) the occurrence of any servicer default or termination event for pooling and servicing agreements representing 15% or more (by mortgage loan balance as of the date of termination) of all the pooling and servicing agreements related to the purchased basic fee subject to certain exceptions, (iv) failure to satisfy a collateral performance test measuring the ratio of collected advance reimbursements to the balance of advances, (v) for certain Servicer Advance Notes, failure to satisfy minimum tangible net worth requirements for the applicable servicer, the Buyer or New Residential, (vi) for certain Servicer Advance Notes, failure to satisfy minimum liquidity requirements for the applicable servicer and the Buyer, (vii) for certain Servicer Advance Notes, failure to satisfy leverage tests for the applicable servicer, the Buyer or New Residential, (viii) for certain Servicer Advance Notes, a change of control of the Buyer or New Residential, (ix) for certain Servicer Advance Notes, a change of control of the applicable servicer, (x) for certain Servicer Advance Notes, the failure of the applicable servicer to maintain minimum servicer ratings, (xi) for certain Servicer Advance Notes, certain judgments against the Buyer or certain other subsidiaries of New Residential in excess of certain thresholds, (xii) for certain Servicer Advance Notes, payment default under, or an acceleration of, other debt of the Buyer or certain other subsidiaries of New Residential, (xiii) failure to deliver certain reports, and (xiv) material breaches of any of the transaction documents.

Certain of the Servicer Advance Notes accrue interest based on a floating rate of interest. Servicer advances and deferred servicing fees are non-interest bearing assets. The interest obligations in respect of certain of the Servicer Advance Notes are not supported by any interest rate hedging instrument or arrangement. If the applicable index rate for purposes of determining the interest rates on the Servicer Advance Notes rises, there may not be sufficient collections on the servicer advances and deferred servicing fees and a target amortization event or an event of default could occur in respect of certain Servicer Advance Notes. This could result in a partial or total loss on our investment.

Maturities

Our debt obligations as of December 31, 2021, as summarized in Note 13 to our Consolidated Financial Statements, had contractual maturities as follows (in thousands):

[[GREPCENT_TABLE]]
[["Year Ending","","Nonrecourse(A)","","Recourse(B)","","Total"],["2022","","$","1,088,882","","","$","17,402,381","","","$","18,491,263"],["2023","","1,380,352","","","3,824,659","","","5,205,011"],["2024","","750,000","","","1,211,791","","","1,961,791"],["2025","","\u2014","","","2,043,989","","","2,043,989"],["2026 and thereafter","","525,036","","","1,596,396","","","2,121,432"],["","","$","3,744,270","","","$","26,079,216","","","$","29,823,486"]]
[[/GREPCENT_TABLE]]

(A)Includes secured notes and bonds payable of $3.7 billion.

(B)Includes Secured Financing Agreements and Secured Notes and Bonds Payable of $20.6 billion and $5.5 billion, respectively.

The weighted average differences between the fair value of the assets and the face amount of available financing for the Agency RMBS repurchase agreements (including amounts related to receivables for investments sold) and Non-Agency RMBS repurchase agreements were 0.7% and 29.0%, respectively, and for residential mortgage loans and REO were 7.7% and 28.2%, respectively, during the year ended December 31, 2021.

110

Borrowing Capacity

The following table summarizes our borrowing capacity as of December 31, 2021 (in thousands):

[[GREPCENT_TABLE]]
[["Debt Obligations / Collateral","","","","Borrowing Capacity","","Balance Outstanding","","Available Financing(A)"],["Secured Financing Agreements"],["Residential mortgage loans and REO","","","","$","5,178,992","","","$","3,478,514","","","$","1,700,478"],["Loan origination","","","","21,564,856","","","8,824,916","","","12,739,940"],["Secured Notes and Bonds Payable"],["Excess MSRs","","","","286,380","","","237,835","","","48,546"],["MSRs","","","","4,999,244","","","4,245,401","","","753,843"],["Servicer advances","","","","4,002,644","","","2,718,660","","","1,283,984"],["Residential mortgage loans","","","","200,000","","","199,713","","","287"],["","","","","$","36,232,116","","","$","19,705,039","","","$","16,527,078"]]
[[/GREPCENT_TABLE]]

(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. Additionally, with the expected phase out of LIBOR, we expect the calculated rate on certain debt obligations will be changed to another published reference standard before the planned cessation of LIBOR quotations in 2023. However, we do not anticipate this change having a significant effect on the terms and conditions, ability to access credit, or on our financial condition. We were in compliance with all of our debt covenants as of December 31, 2021.

Stockholders’ Equity

Preferred Stock

Pursuant to our certificate of incorporation, we are authorized to designate and issue up to 100.0 million shares of preferred stock, par value of $0.01 per share, in one or more classes or series.

The following table summarizes preferred shares:

[[GREPCENT_TABLE]]
[["","","Number of Shares","","Liquidation Preference(A)","","","","","","Dividends Declared per Share"],["","","December 31,","","","","","","Year Ended December 31,"],["Series","","2021","","2020","","2021","","2020","","Issuance Discount","","Carrying Value(B)","","2021","","2020","","2019"],["Series A, 7.50% issued July 2019(C)","","6,210","","","6,210","","","$","155,250","","","$","155,250","","","3.15","%","","$","150,026","","","$","1.88","","","$","1.88","","","$","1.16"],["Series B, 7.125% issued August 2019(C)","","11,300","","","11,300","","","282,500","","","282,500","","","3.15","%","","273,418","","","1.78","","","1.78","","","0.89"],["Series C, 6.375% issued February 2020(C)","","16,100","","","16,100","","","402,500","","","402,500","","","3.15","%","","389,548","","","1.59","","","1.60","","","\u2014"],["Series D, 7.00% issued September 2021(D)","","18,600","","","\u2014","","","465,000","","","\u2014","","","3.15","%","","449,489","","","0.72","","","\u2014","","","\u2014"],["Total","","52,210","","","33,610","","","$","1,305,250","","","$","840,250","","","","","$","1,262,481","","","$","5.97","","","$","5.26","","","$","2.05"]]
[[/GREPCENT_TABLE]]

(A)Each series has a liquidation preference of $25.00 per share.

(B)Carrying value reflects par value less discount and issuance costs.

(C)Fixed-to-floating rate cumulative redeemable preferred.

(D)Fixed-rate reset cumulative redeemable preferred.

111

Our Series A, Series B, Series C, and Series D rank senior to all classes or series of our common stock and to all other equity securities issued by us that expressly indicate are subordinated to the Series A, Series B, Series C, and Series D with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up. Our Series A, Series B, Series C, and Series D have no stated maturity, are not subject to any sinking fund or mandatory redemption and rank on parity with each other. Under certain circumstances upon a change of control, our Series A, Series B, Series C, and Series D are convertible to shares of our common stock.

From and including the date of original issue, July 2, 2019, August 15, 2019, February 14, 2020, and September 17, 2021 but excluding August 15, 2024, August 15, 2024, February 15, 2025, and November 15, 2026, holders of shares of our Series A, Series B, Series C, and Series D are entitled to receive cumulative cash dividends at a rate of 7.50%, 7.125%, 6.375%, and 7.00% per annum of the $25.00 liquidation preference per share (equivalent to $1.875, $1.781, $1.594, and $1.750 per annum per share), respectively, and from and including August 15, 2024, August 15, 2024 and February 15, 2025, at a floating rate per annum equal to the three-month LIBOR plus a spread of 5.802%, 5.640%, and 4.969% per annum, for our Series A, Series B, and Series C, respectively. Holders of shares of our Series D, from and including November 15, 2026, are entitled to receive cumulative cash dividends based on the five-year treasury rate plus a spread of 6.223%. Dividends for the Series A, Series B, Series C, and Series D are payable quarterly in arrears on or about the 15th day of each February, May, August and November.

The Series A and Series B will not be redeemable before August 15, 2024, the Series C will not be redeemable before February 15, 2025, and the Series D will not be redeemable before November 15, 2026 except under certain limited circumstances intended to preserve our qualification as a REIT for U.S. federal income tax purposes and except upon the occurrence of a Change of Control (as defined in the Certificate of Designations). On or after August 15, 2024 for the Series A and Series B, February 15, 2025 for the Series C, and November 15, 2026 for the Series D we may, at our option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A, Series B, Series C, and Series D in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the redemption date, without interest.

We may from time to time seek to repurchase our outstanding preferred stock, through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Common Stock

Our certificate of incorporation authorizes 2.0 billion shares of common stock, par value $0.01 per share.

Approximately 2.4 million shares of our common stock were held by Fortress, through its affiliates, and its principals as of December 31, 2021.

On April 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. On April 16, 2021, the underwriters exercised their option, in part, to purchase an additional 6,725,000 shares of common stock. The offering closed on April 19, 2021. To compensate the Manager for its successful efforts in raising capital for 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 (see Note 3 to our Consolidated Financial Statements).

On May 19, 2021, we entered into a Distribution Agreement to sell shares of our common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price of up to $500.0 million, from time to time, through an “at-the-market” equity offering program (the “ATM Program”). During the year ended December 31, 2021, we issued an aggregate of 178,000 shares of our common stock at an average price of $11.39 per share, net of fees.

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

112

In December 2021, our board of directors authorized the repurchase of up to $200.0 million of our common stock and $100.0 million of our preferred stock through December 31, 2022. 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 programs 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.

The following table summarizes outstanding options as of December 31, 2021:

[[GREPCENT_TABLE]]
[["Held by the Manager","19,877,843"],["Issued to the Manager and subsequently assigned to certain of the Manager\u2019s employees","1,594,147"],["Issued to the independent directors","7,000"],["Total","21,478,990"]]
[[/GREPCENT_TABLE]]

As of December 31, 2021, outstanding options had a weighted average exercise price of $14.17.

Accumulated Other Comprehensive Income (Loss)

During the year ended December 31, 2021, our accumulated other comprehensive income changed due to the following factors (in thousands):

[[GREPCENT_TABLE]]
[["","Total Accumulated Other Comprehensive Income"],["Balance at December 31, 2020","$","65,697"],["Unrealized gain (loss) on available-for-sale securities, net","29,944"],["Reclassification of realized (gain) loss on available-for-sale securities, net into net income","(5,388)"],["Balance at December 31, 2021","$","90,253"]]
[[/GREPCENT_TABLE]]

Activity with accumulated other comprehensive income reflect changes in the fair value of our real estate and other securities portfolio. The change in fair value is primarily associated with changes in interest rates and credit spreads during the reporting period.

See “—Market Considerations” above for a further discussion of recent trends and events affecting our unrealized gains and losses as well as our liquidity.

Common Dividends

We are organized and intend to conduct our operations to qualify as a REIT for U.S. federal income tax purposes. We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make regular quarterly distributions of our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our repurchase 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.

113

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.

Cash Flows

The following table summarizes changes to our cash, cash equivalents, and restricted cash for the periods presented:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","2020","","Change"],["Beginning of period \u2014 cash, cash equivalents, and restricted cash","","$","1,080,473","","","$","690,934","","","$","389,539"],["Net cash provided by (used in) operating activities","","2,883,872","","","1,873,706","","","1,010,166"],["Net cash provided by (used in) investing activities","","2,306,253","","","8,627,678","","","(6,321,425)"],["Net cash provided by (used in) financing activities","","(4,742,156)","","","(10,111,845)","","","5,369,689"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","","447,969","","","389,539","","","58,430"],["End of period \u2014 cash, cash equivalents, and restricted cash","","$","1,528,442","","","$","1,080,473","","","$","447,969"]]
[[/GREPCENT_TABLE]]

Operating Activities

Net cash provided by operating activities increased approximately $1.0 billion for the year ended December 31, 2021 compared to 2020. Operating cash inflows for the year ended December 31, 2021 primarily consisted of proceeds from sales and principal repayments of purchased residential mortgage loans, held-for-sale, servicing fees received, net interest income received, and net recoveries of servicer advances receivable. Operating cash outflows primarily consisted of purchases of residential mortgage loans, held-for-sale, loan originations, management fees paid to the Manager, income taxes paid, and subservicing fees paid.

Investing Activities

Cash flows provided by investing activities were $2.3 billion and $8.6 billion for the year ended December 31, 2021 and 2020, respectively. Investing activities primarily consisted of cash paid for SFR properties, the acquisition of businesses, MSRs, real estate securities, and the funding of servicer advance investments, net of principal repayments from servicer advance investments, MSRs, real estate securities and loans as well as proceeds from the sale of real estate securities, loans and REO, and derivative cash flows.

Financing Activities

Cash flows used in financing activities were approximately $4.7 billion and $10.1 billion for the year ended December 31, 2021 and 2020, respectively. Financing activities consisted primarily of borrowings net of repayments under debt obligations, margin deposits net of returns, 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.”

114

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 $0.9 billion. As of December 31, 2021, there was $10.8 billion in total outstanding unpaid principal balance of residential mortgage loans underlying such securitization trusts that represent off-balance sheet financings.

As of December 31, 2021, we did not have any other commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

CONTRACTUAL OBLIGATIONS

As of December 31, 2021, we had the following material contractual obligations:

[[GREPCENT_TABLE]]
[["Contract","","Terms"],["Debt Obligations"],["Secured Financing Agreements","","Described under Note 13 to our Consolidated Financial Statements."],["Secured Notes and Bonds Payable","","Described under Note 13 to our Consolidated Financial Statements."],["Unsecured Senior Notes","","Described under Note 13 to our Consolidated Financial Statements."],["Other Contractual Obligations"],["Lease Liability","","Described under Note 17 to our Consolidated Financial Statements."],["Management Agreement","","For its services, our Manager is entitled to management fees, incentive fees, and reimbursement for certain expenses, as defined in, and in accordance with the terms of, the Management Agreement. Such terms are described in Note 18 to our Consolidated Financial Statements."],["Interest Rate Swaps","","Described under Note 12 to our Consolidated Financial Statements."]]
[[/GREPCENT_TABLE]]

See Notes 17 and 20 to our Consolidated Financial Statements for information regarding commitments and material contracts entered into subsequent to December 31, 2021, if any. As described in Note 17, we have committed to purchase certain future servicer advances. The actual amount of future advances is subject to significant uncertainty. However, we currently expect that net recoveries of servicer advances will exceed net fundings for the foreseeable future. This expectation is based on judgments, estimates and assumptions, all of which are subject to significant uncertainty as further described in “—Critical Accounting Policies and Use of Estimates—Servicer Advance Investments.” In addition, the Consumer Loan Companies have invested in loans with an aggregate of $244.1 million of unfunded and available revolving credit privileges as of December 31, 2021. However, under the terms of these loans, requests for draws may be denied and unfunded availability may be terminated at management’s discretion. Lastly, Genesis had commitments to fund up to $539.4 million of additional advances on existing mortgage loans as of December 31, 2021. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the customer and other terms regarding advances that must be met before Genesis funds the commitment.

INFLATION

Virtually all of our assets and liabilities are financial in nature. As a result, interest rates and other factors affect our performance more so than inflation, although inflation rates can often have a meaningful influence over the direction of interest rates. Furthermore, our financial statements are prepared in accordance with GAAP and our distributions are determined by our board of directors primarily based on our taxable income, and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation. See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.”

115