Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN EQUITY METHOD INVESTEES

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INVESTMENTS IN EQUITY METHOD INVESTEES
3 Months Ended
Mar. 31, 2013
Investments In Equity Method Investees  
INVESTMENTS IN EQUITY METHOD INVESTEES

6.     INVESTMENTS IN EQUITY METHOD INVESTEES

 

During the first quarter of 2013, New Residential entered into investments in joint ventures (“Excess MSR joint ventures”) jointly controlled by New Residential and Fortress-managed funds investing in Excess MSRs. New Residential elected to record these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial statements with better information regarding the effects of prepayment risk and other market factors.

 

The following tables summarize the investments in equity method investees held by New Residential at March 31, 2013:

 

    March 31, 2013  
Assets (A)   $ 275,779  
Debt     —  
Other Liabilities     (70,603 )
Equity   $ 205,176  
New Residential’s Investment   $ 102,588  
New Residential’s Ownership     50.0 %

 

(A) Includes $20.8 million of deposits related to investments which have not closed at March 31, 2013.

 

    Three Months Ended March 31, 2013  
Interest income   $ 5,616  
Other income     (3,154 )
Expenses     (524 )
Net Income   $ 1,938  

 

The following is a summary of New Residential’s Excess MSR investments made through equity method investees:

 

    March 31, 2013  
    Unpaid
Principal
Balance
    Investee
Interest in
Excess MSR
    New Residential Interest
in Investees
    Amortized
Cost Basis (A)
    Carrying Value (B)     Weighted Average Yield     Weighted Average Maturity (Years) (C)  
MSR Pool 6   $ 11,821,572       66.7 %     50.0 %   $ 42,388     $ 41,453       17.4 %     4.9  
MSR Pool 6 - Recapture Agreement     —       66.7 %     50.0 %     10,954       10,972       17.4 %     10.7  
MSR Pool 7     36,440,577       66.7 %     50.0 %     109,420       109,048       15.2 %     5.1  
MSR Pool 7 - Recapture Agreement     —       66.7 %     50.0 %     23,296       23,164       15.2 %     12.0  
MSR Pool 8     16,613,186       66.7 %     50.0 %     58,748       57,177       15.0 %     5.0  
MSR Pool 8 - Recapture Agreement     —       66.7 %     50.0 %     13,312       13,150       15.0 %     11.7  
    $ 64,875,335                     $ 258,118     $ 254,964       15.6 %     6.3  

 

(A) Represents the amortized cost basis of the equity method investees in which New Residential holds a 50% interest. The amortized cost basis of the Recapture Agreements is determined based on the relative fair values of the Recapture Agreements and related Excess MSRs at the time they were acquired.
(B) Represents the carrying value of the equity method investees in which New Residential holds a 50% interest. Carrying value represents the fair value of the pools or Recapture Agreements, as applicable.
(C) The weighted average maturity represents the weighted average expected timing of the receipt of cash flows of each investment.

 

On January 4, 2013, New Residential, through a joint venture, co-invested in Excess MSRs on a portfolio of Government National Mortgage Association (“Ginnie Mae”) residential mortgage loans with a UPB of approximately $13 billion as of November 30, 2012. Nationstar acquired the related servicing rights from Bank of America in November 2012. New Residential contributed approximately $28.9 million for a 50% interest in a joint venture which acquired an approximately 67% interest in the Excess MSRs on this portfolio. The remaining interests in the joint venture will be owned by a Fortress-managed fund and the remaining interest of approximately 33% in the Excess MSRs will be owned by Nationstar. As the servicer, Nationstar will perform all servicing and advancing functions, and it will retain the ancillary income, servicing obligations and liabilities associated with this portfolio. 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 the joint venture and Nationstar, subject to certain limitations.

 

On January 6, 2013 New Residential, through joint ventures, agreed to co-invest in Excess MSRs on a portfolio of four pools of residential mortgage loans with a UPB of approximately $215 billion as of November 30, 2012. Approximately 53% of the loans in this portfolio are in private label securitizations, and the remainder are owned, insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Nationstar has agreed to acquire the related servicing rights from Bank of America. New Residential committed to invest approximately $340 million (based on the November 30, 2012 UPB) for a 50% interest in a joint ventures which will acquire an approximately 67% interest in the Excess MSRs on this portfolio. As of March 31, 2013, New Residential had contributed approximately $80.7 million to the joint ventures. The remaining interests in the joint ventures will be owned by Fortress-managed funds and the remaining interest of approximately 33% in the Excess MSRs will be owned by Nationstar. As the servicer, Nationstar will perform all servicing and advancing functions, and it will retain the ancillary income, servicing obligations and liabilities associated with this portfolio. 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 the joint ventures and Nationstar, subject to certain limitations. On January 31, 2013, New Residential completed the first closing of this co-investment. The first closing related to Excess MSRs on loans with an aggregate UPB of approximately $58 billion as of December 31, 2012, that are owned, insured, or guaranteed by Fannie Mae or Freddie Mac. There can be no assurance that New Residential will complete this investment as anticipated or at all.

 

The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments made through equity method investees at March 31, 2013:

 

State Concentration   Percentage of Total Outstanding (A)  
California     15.2 %
Florida     7.9 %
New York     7.6 %
Texas     5.9 %
New Jersey     4.8 %
Washington     3.4 %
Virginia     3.0 %
Maryland     2.8 %
Arizona     2.5 %
Colorado     2.4 %
Other U.S.     44.5 %
      100.0 %

  

(A) Based on the information provided by the loan servicer as of March 31, 2013 for Pool 6 and February 28, 2013 for Pools 7 and 8.