| REAL ESTATE RELATED AND OTHER LOANS, RESIDENTIAL MORTGAGE LOANS AND SUBPRIME MORTAGE LOANS |
REAL ESTATE RELATED AND OTHER LOANS, RESIDENTIAL MORTGAGE LOANS AND SUBPRIME MORTGAGE LOANS
Loans are accounted for based on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. Purchased loans that Newcastle has the intent and ability to hold for the foreseeable future or until maturity or payoff are classified as held-for-investment. Alternatively, loans acquired with the intent to sell are classified as held-for-sale.
The following is a summary of real estate related and other loans, residential mortgage loans and subprime mortgage loans at September 30, 2016. The loans contain various terms, including fixed and floating rates, self-amortizing and interest only. They are generally subject to prepayment.
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Loan Type |
Outstanding
Face Amount |
|
Carrying
Value (A) |
|
Valuation Allowance |
|
Loan
Count |
|
Weighted
Average
Yield |
|
Weighted Average Coupon |
|
Weighted Average Life
(Years) (B) |
|
Floating Rate Loans as % of Face Amount |
|
Delinquent Face Amount (C) |
Mezzanine Loans |
$ |
17,767 |
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|
$ |
— |
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$ |
— |
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|
2 |
|
|
— |
% |
|
8.39 |
% |
|
0.0 |
|
100.0 |
% |
|
$ |
17,767 |
|
Corporate Loans |
117,065 |
|
|
52,874 |
|
|
3,247 |
|
|
4 |
|
|
22.47 |
% |
|
14.99 |
% |
|
0.5 |
|
— |
% |
|
59,384 |
|
Total Real Estate Related and other Loans Held-for-Sale, Net |
$ |
134,832 |
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$ |
52,874 |
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|
$ |
3,247 |
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6 |
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22.47 |
% |
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14.12 |
% |
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0.4 |
|
13.2 |
% |
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$ |
77,151 |
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Residential Mortgage Loans Held-for-Sale, Net (D) |
$ |
774 |
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$ |
240 |
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$ |
207 |
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3 |
|
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3.34 |
% |
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2.98 |
% |
|
1.8 |
|
100.0 |
% |
|
$ |
628 |
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Subprime Mortgage Loans Subject to Call Option |
$ |
353,347 |
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$ |
353,347 |
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(A) |
Carrying value includes negligible interest receivable for the residential housing loans. |
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(B) |
The weighted average life is based on the timing of expected cash flows on the assets. |
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(C) |
Includes loans that are 60 or more days past due (including loans that are in foreclosure, or borrower’s in bankruptcy) or considered real estate owned (“REO”). As of September 30, 2016, $77.2 million face amount of real estate related and other loans was on non-accrual status.
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(D) |
Loans acquired at a discount for credit quality. Residential mortgage loans held-for-sale, net is recorded in receivables and other assets on the Consolidated Balance Sheets. |
The following is a summary of real estate related and other loans by maturities at September 30, 2016:
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Year of Maturity |
Outstanding Face Amount |
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Carrying Value |
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Number of Loans |
Delinquent (A)
|
$ |
77,151 |
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|
$ |
725 |
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|
5 |
|
Period from October 1, 2016 to December 31, 2016 |
— |
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— |
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— |
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2017 |
— |
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— |
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— |
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2018 |
— |
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— |
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— |
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2019 |
57,681 |
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|
52,149 |
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1 |
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2020 |
— |
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— |
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— |
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2021 |
— |
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— |
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— |
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Thereafter |
— |
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— |
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— |
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Total |
$ |
134,832 |
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$ |
52,874 |
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|
6 |
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(A) |
Includes loans that are non-performing, in foreclosure, or under bankruptcy |
Activities relating to the carrying value of Newcastle’s real estate related and other loans and residential mortgage loans are as follows:
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Held-for-Sale |
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Real Estate Related and Other Loans |
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Residential Mortgage Loans (A) |
Balance at December 31, 2015 |
$ |
149,198 |
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|
$ |
532 |
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Purchases / additional fundings |
— |
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— |
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Interest accrued to principal balance |
25,708 |
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— |
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Principal paydowns |
(109,892 |
) |
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(38 |
) |
Sales |
(19,433 |
) |
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— |
|
Valuation allowance on loans |
(3,247 |
) |
|
(207 |
) |
Accretion of loan discount, other amortization and other income |
10,540 |
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|
— |
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Loss on settlement of loans |
— |
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|
(47 |
) |
Balance at September 30, 2016 |
$ |
52,874 |
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|
$ |
240 |
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(A) |
Recorded in receivables and other assets on the Consolidated Balance Sheets. |
The following is a rollforward of the related loss allowance.
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Held-For-Sale |
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Real Estate Related and Other Loans |
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Residential Mortgage Loans |
Balance at December 31, 2015 |
$ |
(70,865 |
) |
|
$ |
(251 |
) |
Charge-offs |
— |
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— |
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Valuation allowance on loans |
(3,247 |
) |
|
(207 |
) |
Balance at September 30, 2016 |
$ |
(74,112 |
) |
|
$ |
(458 |
) |
The table below summarizes the geographic distribution of real estate related and other loans and residential mortgage loans at September 30, 2016:
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Real Estate Related
and Other Loans |
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Residential Mortgage Loans |
Geographic Location |
Outstanding Face Amount |
|
Percentage |
|
Outstanding Face Amount |
|
Percentage |
Northeastern U.S. |
$ |
— |
|
|
— |
% |
|
$ |
523 |
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|
67.6 |
% |
Southeastern U.S. |
— |
|
|
— |
% |
|
251 |
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32.4 |
% |
Foreign |
63,454 |
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|
100.0 |
% |
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— |
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— |
% |
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$ |
63,454 |
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100.0 |
% |
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$ |
774 |
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100.0 |
% |
Other (A) |
71,378 |
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$ |
134,832 |
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(A) |
Includes corporate loans which are not directly secured by real estate assets. |
In April 2016, Newcastle sold a mezzanine loan with a face amount of $19.4 million at par. Newcastle subsequently repaid $11.7 million of notes payable that were collateralized by the loan.
In September 2016, Newcastle received a paydown on a corporate loan in the resorts industry (“the resort-related loan”) in the amount of $109.9 million. As of September 30, 2016, the face amount of the resort-related loan was $57.7 million.
Securitization of Subprime Mortgage Loans
The following table presents information on the retained interests in Newcastle’s securitizations of subprime mortgage loans at September 30, 2016:
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Subprime Portfolio |
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I |
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II |
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Total |
Total securitized loans (unpaid principal balance) (A) |
$ |
247,163 |
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$ |
360,388 |
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$ |
607,551 |
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Loans subject to call option (carrying value) |
$ |
246,306 |
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$ |
107,041 |
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$ |
353,347 |
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Retained bonds (fair value) (B) |
$ |
3,430 |
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$ |
— |
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$ |
3,430 |
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(A) |
Average loan seasoning of 134 months and 116 months for Subprime Portfolios I and II, respectively, at September 30, 2016.
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(B) |
The retained interests include retained bonds of the securitizations. Their fair value is estimated based on pricing models. The weighted average yield of the retained bonds was 24.6% as of September 30, 2016. Newcastle’s residual interests were written off in 2010.
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Newcastle has no obligation to repurchase any loans from either of its subprime securitizations. Therefore, it is expected that its exposure to loss is limited to the carrying amount of its retained interests in the securitization entities, as described above. A subsidiary of Newcastle gave limited representations and warranties with respect to Subprime Portfolio II and is required to pay
the difference, if any, between the repurchase price of any loan in such portfolio and the price required to be paid by a third party originator for such loan. Such subsidiary, however, has no assets and does not have recourse to the general credit of Newcastle.
The following table summarizes certain characteristics of the underlying subprime mortgage loans, and related financing, in the securitizations as of September 30, 2016:
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Subprime Portfolio |
|
I |
|
II |
Loan unpaid principal balance (“UPB”) |
$ |
247,163 |
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|
$ |
360,388 |
|
Weighted average coupon rate of loans |
5.45 |
% |
|
4.37 |
% |
Delinquencies of 60 or more days (UPB) (A) |
$ |
38,390 |
|
|
$ |
84,480 |
|
Net credit losses for the nine months ended September 30, 2016 |
$ |
6,452 |
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|
$ |
13,036 |
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Cumulative net credit losses |
$ |
291,776 |
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$ |
376,653 |
|
Cumulative net credit losses as a % of original UPB |
19.4 |
% |
|
34.6 |
% |
Percentage of ARM loans (B) |
51.7 |
% |
|
64.1 |
% |
Percentage of loans with original loan-to-value ratio >90% |
10.6 |
% |
|
15.5 |
% |
Percentage of interest-only loans |
0.8 |
% |
|
1.9 |
% |
Face amount of debt (C) |
$ |
242,306 |
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|
$ |
360,388 |
|
Weighted average funding cost of debt (D) |
0.91 |
% |
|
0.79 |
% |
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(A) |
Delinquencies include loans 60 or more days past due, in foreclosure, under bankruptcy filing or REO. |
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(B) |
ARM loans are adjustable-rate mortgage loans. An option ARM is an adjustable-rate mortgage that provides the borrower with an option to choose from several payment amounts each month for a specified period of the loan term. None of the loans in the subprime portfolios are option ARMs. |
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(C) |
Excludes face amount of $4.0 million of retained notes for Subprime Portfolio I and over-collateralization of $0.9 million on Subprime Portfolio I at September 30, 2016.
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(D) |
Includes the effect of applicable hedges, if any. |
Newcastle received negligible cash inflows from the retained interests of Subprime Portfolios I and II during the nine months ended September 30, 2016 and 2015.
The loans subject to call option and the corresponding financing recognize interest income and expense based on the expected weighted average coupons of the loans subject to call option at the call date of 9.24% and 8.68% for Subprime Portfolio’s I and II, respectively.
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