Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS AT FAIR VALUE

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INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS AT FAIR VALUE
3 Months Ended
Mar. 31, 2013
Investments In Excess Mortgage Servicing Rights At Fair Value  
INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS AT FAIR VALUE

3.    INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS AT FAIR VALUE

 

Pool 1. On December 13, 2011, Newcastle announced the completion of the first co-investment between New Residential and Nationstar in Excess MSRs related to mortgage servicing rights acquired by Nationstar. New Residential invested approximately $44 million to acquire a 65% interest in the Excess MSRs on a portfolio of government-sponsored enterprise (“GSE”) residential mortgage loans with an outstanding principal balance of approximately $9.9 billion (“Pool 1”). Nationstar has co-invested on a pari passu basis with New Residential in 35% of the Excess MSRs and will be the servicer of the loans, performing all servicing and advancing functions, and retaining the ancillary income, the servicing obligations and liabilities as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs will be shared on a pro rata basis by New Residential and Nationstar, subject to certain limitations.

 

Pool 2. On June 5, 2012, Newcastle announced the completion of a co-investment between New Residential and Nationstar in Excess MSRs related to mortgage servicing rights Nationstar acquired from Bank of America. New Residential invested approximately $44 million to acquire a 65% interest in the Excess MSRs on a portfolio of residential mortgage loans with an outstanding principal balance of approximately $10.4 billion (“Pool 2”), comprised of loans in GSE pools. Nationstar has co-invested on a pari passu basis with New Residential in 35% of the Excess MSRs and will be the servicer of the loans, performing all servicing and advancing functions, and retaining the ancillary income, servicing obligations and liabilities as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs will be shared on a pro rata basis by New Residential and Nationstar, subject to certain limitations.

 

Pools 3, 4 and 5. On June 29, 2012, Newcastle announced the completion of a co-investment between New Residential and Nationstar in Excess MSRs related to mortgage servicing rights Nationstar acquired from Aurora Bank FSB, a subsidiary of Lehman Brothers Bancorp Inc. New Residential invested approximately $176.5 million to acquire a 65% interest in the Excess MSRs on a portfolio of residential mortgage loans with an outstanding principal balance of approximately $63.7 billion, comprised of approximately 75% non-conforming loans in private label securitizations and approximately 25% conforming loans in GSE pools. The portfolio is comprised of three pools: two GSE loan pools with outstanding principal balances of approximately $9.8 billion (“Pool 3”) and $6.3 billion (“Pool 4”), respectively, and a pool of non-conforming loans in private label securitizations with an outstanding principal balance of approximately $47.6 billion (“Pool 5”). Nationstar has co-invested on a pari passu basis with New Residential in 35% of the Excess MSRs and will be the servicer of the loans, performing all servicing and advancing functions, and retaining the ancillary income, servicing obligations and liabilities as the servicer. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs will be shared on a pro rata basis by New Residential and Nationstar, subject to certain limitations.

 

The following is a summary of New Residential’s direct investments in Excess MSRs:

 

          March 31, 2013     Three Months Ended March 31, 2013  
    Unpaid Principal Balance
(“UPB”) of Underlying Mortgages
    Amortized Cost Basis (A)     Carrying Value (B)     Weighted Average Yield     Weighted Average Maturity (Years) (C)     Changes in Fair Value Recorded in Other Income (D)  
MSR Pool 1   $ 8,021,789     $ 29,329     $ 35,333       18.0 %     4.8     $ 266  
MSR Pool 1 - Recapture Agreement     —       3,676       4,355       18.0 %     11.0       174  
MSR Pool 2     9,038,057       32,345       33,695       17.3 %     5.0       306  
MSR Pool 2 - Recapture Agreement     —       4,108       4,880       17.3 %     12.0       591  
MSR Pool 3     8,758,689       26,502       30,126       17.6 %     4.7       768  
MSR Pool 3 - Recapture Agreement     —       4,598       4,552       17.6 %     11.4       30  
MSR Pool 4     5,586,851       10,809       11,969       17.9 %     4.6       141  
MSR Pool 4 - Recapture Agreement     —       2,763       2,705       17.9 %     11.1       (43 )
MSR Pool 5     41,917,506       102,718       104,507       17.5 %     4.7       (190 )
MSR Pool 5 - Recapture Agreement     —       8,460       4,433       17.5 %     11.7       (185 )
    $ 73,322,892     $ 225,308     $ 236,555       17.6 %     5.4     $ 1,858  

 

(A) The amortized cost basis of the Recapture Agreements is determined based on the relative fair values of the Recapture Agreements and related Excess MSRs at the time they were acquired.
   
(B) Carrying Value represents the fair value of the pools or Recapture Agreements, as applicable.
   
(C) Weighted Average Maturity represents the weighted average expected timing of the receipt of expected cash flows for this investment.
   
(D) The portion of the change in fair value of the Recapture Agreements relating to loans recaptured to date is reflected in the respective pool.

 

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the direct investments in Excess MSRs at March 31, 2013:

 

State Concentration   Percentage of Total Outstanding  
California     31.7 %
Florida     10.1 %
New York     4.4 %
Washington     4.3 %
Arizona     3.8 %
Texas     3.6 %
Colorado     3.5 %
Maryland     3.4 %
New Jersey     3.2 %
Virginia     3.0 %
Other U.S.     29.0 %
      100.0 %

 

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