REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS AND SERVICING RIGHTS
|9 Months Ended|
Sep. 30, 2011
|Notes to Financial Statements|
|REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS AND SERVICING RIGHTS||
4. REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS AND SERVICING RIGHTS
The following is a summary of real estate related loans, residential mortgage loans and subprime mortgage loans at September 30, 2011. The loans contain various terms, including fixed and floating rates, self-amortizing and interest only. They are generally subject to prepayment.
Newcastles management monitors the credit qualities of the Manufactured Housing Loan Portfolios I and II primarily by using aging analyses, current trends in delinquencies and actual loss incurrence rates.
Newcastles investments in real estate related loans and non-securitized manufactured housing loans were classified as held-for-sale as of September 30, 2011 and December 31, 2010. Loans held-for-sale are marked to the lower of carrying value or fair value.
Newcastles investment in the securitized manufactured housing loan portfolio I was classified as held-for-investment as of September 30, 2011 and December 31, 2010. Newcastles investment in the manufactured housing loan portfolio II was classified as held-for-sale as of December 31, 2010. However, subsequent to the refinancing of a portion of the manufactured housing loan portfolio II in May 2011, Newcastle reclassified the securitized portion of the related pool of loans from held-for-sale to held-for-investment since the longer term financing provided it the ability to hold these loans for the foreseeable future. In connection with the securitizations of the manufactured housing loan portfolios, Newcastle gave representations and warranties with respect to the manufactured housing loans sold to the securitization trusts. To the extent a breach of any such representations and warranties materially and adversely affects the value or enforceability of the related loans, Newcastle will be required to repurchase such loans from the respective securitization trusts.
Newcastles investment in the residential loans was classified as held-for-sale as of December 31, 2010. In the third quarter of 2011, in light of its current capital and liquidity positions, Newcastle re-evaluated its intent and ability to hold its investment in residential loans and determined that it has the intent and ability to hold this investment to maturity and reclassified this investment as held-for-investment as of September 30, 2011.
The following is a summary of real estate related loans by maturities at September 30, 2011:
Activities relating to the carrying value of our real estate loans and residential mortgage loans are as follows:
The following is a rollforward of the related loss allowance.
Securitization of Subprime Mortgage Loans
The following table presents information on the retained interests in Newcastles securitizations of subprime mortgage loans at September 30, 2011:
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, 2011:
Newcastle received negligible cash inflows from the retained interests of Subprime Portfolios I and II during the nine months ended September 30, 2011 and $0.3 million and $0.5 million from Subprime Portfolios I and II, respectively, during the nine months ended September 30, 2010.
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 Portfolios I and II, respectively.
In February 2011, Newcastle, through one of its subsidiaries, purchased the management rights with respect to certain CBASS Investment Management LLC (C-BASS) CDOs pursuant to a bankruptcy proceeding for $2.2 million. Newcastle initially recorded the cost of acquiring the collateral management rights as a servicing asset and subsequently amortizes this asset in proportion to, and over the period of, estimated net servicing income. Servicing assets are assessed for impairment on a quarterly basis, with impairment recognized as a valuation allowance. Key economic assumptions used in measuring any potential impairment of the servicing assets include the prepayment speeds of the underlying loans, default rates, loss severities and discount rates. During the nine months ended September 30, 2011, Newcastle recorded $0.2 million of servicing rights amortization and no servicing rights impairment. As of September 30, 2011, Newcastles servicing asset had a carrying value of $2.2 million recorded in Receivables and Other Assets.
The entire disclosure for claims held for amounts due a company. Examples include trade accounts receivables, notes receivables, loans receivables.
Reference 1: http://www.xbrl.org/2003/role/presentationRef