Quarterly report pursuant to Section 13 or 15(d)

INVESTMENT IN RESIDENTIAL MORTGAGE LOANS

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INVESTMENT IN RESIDENTIAL MORTGAGE LOANS
3 Months Ended
Mar. 31, 2014
Investment In Residential Mortgage Loans  
INVESTMENT IN RESIDENTIAL MORTGAGE LOANS
8. INVESTMENTS IN RESIDENTIAL MORTGAGE LOANS

 

On February 27, 2013, New Residential, through a subsidiary, entered into an agreement to co-invest in reverse mortgage loans with a UPB of approximately $83.1 million as of December 31, 2012. New Residential has invested approximately $35.1 million to acquire a 70% interest in the reverse mortgage loans. Nationstar has co-invested on a pari passu basis with New Residential in 30% of the reverse mortgage loans and is the servicer of the loans performing all servicing and advancing functions and retaining the ancillary income, servicing obligations and liabilities as the servicer.

 

The following is a summary of residential mortgage loans at March 31, 2014, all of which are classified as held for investment:

 

    Outstanding Face Amount (A)     Amortized Cost Basis (A)     Carrying Value (A)     Loan Count     Wtd. Avg. Yield     Weighted Average Coupon (B)     Weighted Average Life (Years) (C)     Floating Rate Loans as a % of Face Amount     Delinquent Face Amount (A)(D)  
Loan Type                                                      
Residential Mortgage Loans Held-for- Investment (E)   $ 57,818     $ 34,045     $ 34,045       321       10.3 %     5.1 %     3.6       21.7 %   $ 47,919  

 

(A) Represents a 70% interest New Residential holds in the reverse mortgage loans. The average loan balance outstanding based on total UPB is $0.3 million.
(B) Represents the stated interest rate on the loans. Accrued interest on reverse mortgage loans is generally added to the principal balance and paid when the loan is resolved.
(C) The weighted average life is based on the expected timing of the receipt of cash flows.
(D) Includes loans that have either experienced (i) a termination event or (ii) an event of default, substantially all of which are more than 90 days past the time at which they were considered delinquent or real estate owned (“REO”). Collateral value underlying loans considered delinquent is generally sufficient, however $3.6 million face amount of REO loans, representing New Residential’s 70% interest therein, was on non-accrual status resulting from the uncertainty of cash collections as of March 31, 2014.

(E) 80% of these loans have reached a termination event. As a result, the borrower can no longer make draws on these loans. Each loan matures upon the occurrence of a termination event.

 

Activities related to the carrying value of residential mortgage loans were as follows:

  

    For the Three Months Ended March 31, 2014  
Balance at December 31, 2013   $ 33,539  
Purchases/additional fundings     —  
Proceeds from repayments     (50 )
Accretion of loan discount and other amortization     720  
Valuation allowance     (164 )
      —  
Balance at March 31, 2014   $ 34,045  

 

Activities related to the valuation allowance on residential mortgage loans were as follows:

 

    For the Three Months Ended March 31, 2014  
Balance at December 31, 2013   $ 461  
Charge-offs     —  
Valuation allowance on loans     164  
Balance at March 31, 2014   $ 625  

 

The table below summarizes the geographic distribution of the underlying residential mortgage loans as of March 31, 2014:

  

State Concentration   Percentage of Total Outstanding Unpaid Principal Amount  
New York     22.3 %
Florida     21.4 %
Illinois     7.4 %
New Jersey     6.9 %
California     5.6 %
Massachusetts     4.2 %
Washington     4.0 %
Connecticut     3.9 %
Virginia     3.2 %
Maryland     2.8 %
Other U.S.     18.3 %
      100.0 %

   

In the first quarter of 2014, New Residential invested in portfolios of non-performing loans and financed the transactions with the same counterparties from which it purchased them. New Residential accounts for the contemporaneous purchase of the investments and the associated financings as linked transactions. Accordingly, New Residential records a non-hedge derivative instrument on a net basis, with changes in market value recorded as “Other Income” in the Consolidated Statements of Income. For further information on the transactions, see below and Note 10.

 

On January 15, 2014, New Residential purchased a portfolio of non-performing residential mortgage loans with a UPB of approximately $65.6 million at a price of approximately $33.7 million. To finance this purchase, on January 15, 2014, New Residential entered into a $25.3 million repurchase agreement with Credit Suisse. The repurchase agreement, which contains customary covenants and event of default provisions and is subject to margin calls, matures on January 15, 2015. This purchase was accounted for as a linked transaction (Note 10).

 

On March 28, 2014, New Residential purchased a portfolio of non-performing mortgage loans with a UPB of approximately $7.0 million at a price of approximately $3.8 million. The investment was financed with a $2.5 million master repurchase agreement with RBS. The repurchase agreement, which contains customary covenants and event of default provisions and is subject to margin calls, matures on November 24, 2014. This acquisition is accounted for as a "linked transaction" (Note 10).