Annual report pursuant to Section 13 and 15(d)

REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS, CDO SERVICING RIGHTS AND INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

v2.4.0.6
REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS, CDO SERVICING RIGHTS AND INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
12 Months Ended
Dec. 31, 2011
Real Estate Related Loans Residential Mortgage Loans Subprime Mortgage Loans Cdo Servicing Rights And Investments In Excess Mortgage Servicing Rights  
REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS, CDO SERVICING RIGHTS AND INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
5. REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS, CDO SERVICING RIGHTS AND INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS

The following is a summary of real estate related loans, residential mortgage loans and subprime mortgage loans. The loans contain various terms, including fixed and floating rates, self-amortizing and interest only. They are generally subject to prepayment.

 

    December 31, 2011     December 31, 2010  

Loan Type

  Outstanding
Face
Amount
    Carrying Value
(A)
    Loan
Count
    Wtd. Avg.
Yield
    Weighted
Average
Coupon
    Weighted
Average
Maturity
(Years) (B)
    Floating Rate
Loans as a  %
of Face
    Delinquent
Face Amount
(C)
    Carrying Value     Wtd. Avg.
Yield
 

Mezzanine Loans

  $ 609,117      $ 469,326        17        10.35     7.35     2.4        75.1   $ 12,000      $ 388,510        13.48

Corporate Bank Loans

    282,778        161,153        6        21.79     9.27     3.0        51.9     -          208,365        15.63

B-Notes

    174,153        152,535        5        12.25     5.09     2.8        65.5     54,297        154,760        15.14

Whole Loans

    30,566        30,566        3        5.31     3.94     1.9        95.3     -          30,970        5.11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Real Estate Related Loans Held-for-Sale, Net (D)

  $ 1,096,614      $ 813,580        31        12.78     7.39     2.6        68.1   $ 66,297      $ 782,605        14.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-Securitized Manufactured Housing Loan Portfolio I

  $ 768      $ 199        22        39.80     8.33     0.7        0.0   $ 144      $ 298        47.46

Non-Securitized Manufactured Housing Loan Portfolio II (E)

    4,459        2,488        148        15.54     10.27     5.2        7.2     950        203,053        8.30

Residential Loans

    -          -          -          -          -          -          -          -          49,862        5.61
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Residential Mortgage Loans Held-for-Sale, Net (G)

  $ 5,227      $ 2,687        170        17.34     9.98     4.5        6.1   $ 1,094      $ 253,213        7.81
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Securitized Manufactured Housing Loan Portfolio I

  $ 135,209      $ 112,316        3,555        9.51     8.68     7.5        1.0   $ 2,043      $ 124,974        9.59

Securitized Manufactured Housing Loan Portfolio II

    178,603        175,120        6,107        7.55     9.64     5.9        17.3     2,715        -          -     

Residential Loans

    60,156        43,800        213        7.92     2.37     6.7        100.0     6,700        -          -     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Residential Mortgage Loans Held-for-Investment, Net (F) (G)

  $ 373,968      $ 331,236        9,875        8.26     8.12     6.6        24.7   $ 11,458      $ 124,974        9.59
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subprime Mortgage Loans Subject to Call Option

  $ 406,217      $ 404,723                  $ 403,793     
 

 

 

   

 

 

               

 

 

   

 

  (A) The aggregate United States federal income tax basis for such assets at December 31, 2011 was approximately $1.4 billion, excluding the securitized subprime mortgage loans, which are fully consolidated for tax purposes. Carrying value includes interest receivable of $0.1 million for the residential housing loans and principal and interest receivable of $5.2 million for the manufactured housing loans.

 

  (B) The weighted average maturity is based on the timing of expected principal reduction on the assets.

 

  (C) Includes loans that are 60 days or more past due (including loans that are in foreclosure and borrowers’ in bankruptcy) or considered real estate owned (“REO”). As of December 31, 2011 and December 31, 2010, $117.2 million and $158.8 million face amount of real estate related loans, respectively, was on non-accrual status.

 

  (D) Loans which are more than 3% of the total current carrying value (or $24.4 million) at December 31, 2011 are as follows:

 

     December 31, 2011  

Loan Type

   Outstanding
Face
Amount
     Carrying
Value
     Prior  Liens
(1)
     Loan
Count
     Yield (2)     Coupon (2)     Weighted
Average

Maturity
(Years)
 

Individual Bank Loan (3)

   $ 136,156       $ 106,156         701,931         1         24.85     15.55     3.36   

Individual Mezzanine Loan (4)

     70,000         70,000         425,000         1         8.52     8.00     1.58   

Individual Mezzanine Loan (4)

     70,000         70,000         735,000         1         8.69     8.65     4.42   

Individual Mezzanine Loan (4)

     53,510         52,382         815,728         1         12.50     10.53     2.50   

Individual B-Note Loan (4)

     50,000         50,000         225,000         1         6.32     5.93     4.25   

Individual Mezzanine Loan (4)

     45,000         45,000         317,000         1         9.25     9.25     1.92   

Individual B-Note Loan (5)

     54,298         44,524         2,087,317         1         15.89     2.91     1.69   

Individual Mezzanine Loan (4)

     40,000         40,000         324,940         1         8.24     8.00     2.17   

Individual Mezzanine Loan (4)

     39,958         38,160         672,942         1         8.45     6.50     4.25   

Individual Mezzanine Loan (4)

     38,510         37,290         815,728         1         15.00     12.26     2.50   

Individual Whole Loan (6)

     29,117         29,117         -         1         5.23     3.76     1.92   

Individual B-Note (4)

     36,423         29,077         53,116         1         15.00     6.23     3.06   

Individual Mezzanine Loan (4)

     26,119         26,119         621,654         1         7.72     2.42     0.08   

Individual Mezzanine Loan (4)

     25,000         25,000         369,940         1         10.51     10.15     2.17   

Individual Mezzanine Loan (7)

     55,574         24,801         199,420         1         15.00     9.75     3.33   

Others (8)

     326,949         125,954            16         14.49     3.49     2.11   
  

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

 
   $ 1,096,614       $ 813,580            31         12.78     7.39     2.60   
  

 

 

    

 

 

       

 

 

    

 

 

   

 

 

   

 

 

 
  (1) Represents face amount of third party liens that are senior to Newcastle’s position.
  (2) For Others, represents weighted average yield and weighted average coupon.
  (3) Interest accrued to principal balance over life to maturity with a discounted payoff option prior to maturity.
  (4) Interest only payments over life to maturity and balloon principal payment upon maturity.
  (5) Defaulted.
  (6) Interest only payment over life to maturity with a discounted payoff option prior to loan maturity.
  (7) Interest accrued to principal balance over life to maturity.
  (8) Various terms of payment. This represents $146.6 million, $145.5 million, $33.4 million and $1.4 million face amounts of bank loans, mezzanine loans, B-notes and whole loans, respectively. Each of the sixteen loans had a carrying value of less than $24.4 million at December 31, 2011.

 

  (E) Includes securitized and non-securitized Manufactured Housing Loan Portfolio II at December 31, 2010.
  (F) The following is an aging analysis of past due residential loans held-for-investment as of December 31, 2011:

 

      30-59 Days  
Past Due
      60-89 Days  
Past Due
      Over 90 Days Past  
Due
      REO         Total Past  
Due
      Current         Total Outstanding  
Face Amount
 

Securitized Manufactured Housing Loan Portoflio I

  $ 1,398      $ 148      $ 828      $ 1,067      $ 3,441      $ 131,768      $ 135,209   

Securitized Manufactured Housing Loan Portoflio II

  $ 1,644      $ 344      $ 1,545      $ 826      $ 4,359      $ 174,244      $ 178,603   

Residential Loans

  $ 1,080      $ -      $ 6,700      $ -      $ 7,780      $ 52,376      $ 60,156   

Newcastle’s management monitors the credit quality of the Manufactured Housing Loan Portfolios I and II primarily by using the aging analysis, current trends in delinquencies and the actual loss incurrence rate.

 

  (G) Loans acquired at a discount for credit quality.

Newcastle’s investments in real estate related loans and non-securitized manufactured housing loans were classified as held-for-sale as of December 31, 2011 and December 31, 2010. Loans held-for-sale are marked to the lower of carrying value or fair value.

Newcastle’s investment in the securitized manufactured housing loan portfolio I was classified as held-for-investment as of December 31, 2011 and December 31, 2010. Newcastle’s 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 Newcastle with 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.

Newcastle’s investment in the residential loans was classified as held-for-investment as of December 31, 2011 and 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.

The following is a summary of real estate related loans by maturity at December 31, 2011:

 

Year of Maturity (1)

   Outstanding
  Face Amount   
       Carrying Value          Number of  
Loans
 

Delinquent (2)

     $ 66,297         $ 44,524         2   

2012

     113,273         47,697         4   

2013

     29,340         19,907         3   

2014

     350,847         227,902         9   

2015

     220,395         179,053         6   

2016

     299,501         279,526         6   

Thereafter

     16,961         14,971         1   
  

 

 

    

 

 

    

 

 

 

Total

     $ 1,096,614         $ 813,580         31   
  

 

 

    

 

 

    

 

 

 

 

  (1) Based on the final extended maturity date of each loan investment as of December 31, 2011.
  (2) Includes loans that are non-performing, in foreclosure, or under bankruptcy.

Activities relating to the carrying value of our real estate loans and residential mortgage loans are as follows:

 

     Held for Sale      Held for Investment  
     Real Estate Related Loans      Residential Mortgage Loans      Residential Mortgage Loans  

December 31, 2008

   $ 843,212       $ 409,632       $ -   

Additional fundings

     10,777         -         -   

Principal paydowns (A)

     (207,299)         (54,177)         -   

Sales

     (28,781)         -         -   

Valuation (allowance) reversal on loans

     (44,564)         29,557         -   

Other

     517         (1,365)         -   
  

 

 

    

 

 

    

 

 

 

December 31, 2009

   $ 573,862       $ 383,647       $ -   

Purchases / additional fundings

     113,733         -         -   

Interest accrued to principal balance

     12,535         -         -   

Principal paydowns

     (136,078)         (34,781)         (10,916)   

Sales

     (51,225)         -         -   

Transfer to held for investment

     -         (135,942)         135,942   

Transfer to other investments

     (24,907)         -         -   

Valuation (allowance) reversal on loans

     299,620         41,227         (960)   

Accretion of loan discount and other amortization

     -         -         1,035   

Deconsolidation of CDO VII

     (5,453)         -         -   

Other

     518         (938)         (127)   
  

 

 

    

 

 

    

 

 

 

December 31, 2010

   $ 782,605       $ 253,213       $ 124,974   

Purchases / additional fundings

     384,850         -         -   

Interest accrued to principal balance

     19,507         -         -   

Principal paydowns

     (270,767)         (8,818)         (30,514)   

Sales

     (125,141)         -         -   

Transfer to held-for-investment

     -         (238,721)         238,721   

Valuation (allowance) reversal on loans

     21,629         (2,864)         (3,602)   

Accretion of loan discount and other amortization

     (7)         -         2,371   

Other

     904         (123)         (714)   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

   $ 813,580       $ 2,687       $ 331,236   
  

 

 

    

 

 

    

 

 

 

 

  (A) Includes $1.4 million carrying value of two bank loans converted to equity securities during the year ended December 31, 2009.

 

The following is a rollforward of the related loss allowance:

 

     Held for Sale      Held for Investment  
     Real Estate Related Loans      Residential Mortgage Loans      Residential Mortgage Loans (C)  

Balance at December 31, 2009

   $ (822,409)       $ (96,409)       $ -   

Charge-offs (A)

     195,935         8,105         1,494   

Deconsolidation of CDO VII

     5,263         -         -   

Transfer to held-for-investment

     -         21,884         (21,884)   

Valuation (allowance) reversal on loans

     299,620         41,227         (960)   
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2010

   $ (321,591)       $ (25,193)       $ (21,350)   

Charge-offs (A)

     71,945         4,232         5,802   

Reclassified as accretable discount (B)

     -         -         14,439   

Transfer to held-for-investment

     -         21,364         (21,364)   

Valuation (allowance) reversal on loans

     21,629         (2,864)         (3,602)   
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2011

   $ (228,017)       $ (2,461)       $ (26,075)   
  

 

 

    

 

 

    

 

 

 

 

  (A) The charge-offs for real estate related loans represent six and nine loans which were written off, sold, restructured, or paid off at a discounted price during 2011 and 2010, respectively.
  (B) Represents the accretable discount of the residential loans upon the reclassification from held-for-sale to held-for-investment, which will be recognized prospectively as an adjustment of the loans’ yield over the expected life of the loans.
  (C) The allowance for credit losses was determined based on the guidance for loans acquired with deteriorated credit quality.

The average carrying amount of Newcastle’s real estate related loans was approximately $795.3 million, $670.7 million and $668.4 million during 2011, 2010 and 2009, respectively, on which Newcastle earned approximately $65.7 million, $53.3 million and $53.8 million of gross interest revenues, respectively.

The average carrying amount of Newcastle’s residential mortgage loans was approximately $354.9 million, $388.1 million and $380.2 million during 2011, 2010 and 2009, respectively, on which Newcastle earned approximately $34.1 million, $37.8 million and $42.6 million of gross interest revenues, respectively.

The loans are encumbered by various debt obligations as described in Note 8.

CDO Servicing Rights

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. As a result, Newcastle became the collateral manager of certain CDOs previously managed by C-BASS and will earn, on average, a 20 basis point annual senior management fee on a portion of the total collateral, which was $1.3 billion at acquisition. 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 year ended December 31, 2011, Newcastle recorded $0.3 million of servicing rights amortization and no servicing rights impairment. As of December 31, 2011, Newcastle’s servicing asset had a carrying value of $2.0 million recorded in Receivables and Other Assets.

Investments in Excess Mortgage Servicing Rights

On December 8, 2011, Newcastle entered into an agreement (the “MSR Agreement”) with Nationstar Mortgage LLC (“Nationstar”), an affiliate of Newcastle’s manager, to purchase excess MSRs from Nationstar. Nationstar acquired the mortgage servicing rights on a pool of agency residential mortgage loans with an outstanding principal balance of approximately $9.9 billion (the “Portfolio”) on September 30, 2011. Nationstar is entitled to receive an initial weighted average total mortgage servicing fee of 35 basis points (bps) on the performing unpaid principal balance, as well as any ancillary income from the Portfolio. Pursuant to the MSR Agreement, Nationstar performs all servicing functions and advancing functions related to the Portfolio for a base mortgage servicing fee of 6 bps. Therefore, the remainder, or excess mortgage servicing fees are initially equal to a weighted average of 29 bps. Newcastle acquired the right to receive 65% of the excess mortgage servicing fees on the Portfolio and, subject to certain limitations and pursuant to a loan replacement agreement (the “Recapture Agreement”), 65% of the excess mortgage servicing fees on any future mortgage loans originated by Nationstar, which represent refinancings of loans in the Portfolio (which loans then become part of the Portfolio) for $43.7 million. Nationstar has invested, pari passu with Newcastle, in 35% of the excess mortgage servicing fees. Nationstar, as servicer, also retains the ancillary income, the servicing obligations and liabilities as the servicer. If Nationstar is terminated as the servicer, Newcastle’s right to receive its portion of the excess mortgage servicing fee is also terminated. To the extent that Nationstar is terminated as the servicer and receives a termination payment, Newcastle is entitled to a pro rata share, or 65%, of such termination payment.

The following is a summary of Newcastle’s excess MSRs investments at December 31, 2011:

 

     December 31, 2011      Year Ended
December 31,  2011
 
       Amortized Cost  
Basis
     Carrying
  Value (A)   
       Weighted  
Average
Yield
     Weighted
Average
Maturity
  (Years) (B)  
       Changes in Fair Value  
Recorded in Other
Income (Loss)
 

Portfolio I

     $ 37,469           $ 37,637           20.0%         4.5           $ 168     

Portfolio I - Recapture Agreement

     6,135           6,334           20.0%         10.3           199     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     $ 43,604           $ 43,971           20.0%         6.0           $ 367     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (A) Fair value.
  (B) The weighted average maturity is based on the timing of expected return of investments.

Securitization of Subprime Mortgage Loans

Newcastle acquired and securitized two portfolios of subprime residential mortgage loans (“Subprime Portfolio I” and “Subprime Portfolio II”), through subsidiaries, as summarized in the table below. Both portfolios are being serviced by an affiliate of the Manager for a servicing fee equal to 0.50% per annum on their respective unpaid principal balances.

Both portfolios were securitized through special purpose entities (“Securitization Trust 2006” and (“Securitization Trust 2007”) which are not consolidated by Newcastle. Newcastle retained a portion of the notes issued by, and all of the equity of, both entities. Newcastle, as holder of the equity (or residual interest), has the option (a call option) to redeem the notes once the aggregate principal balance of Subprime Portfolio I or Subprime Portfolio II is equal to or less than 20% or 10%, respectively, of such balance at the date of the transfer. The transactions between Newcastle and each securitization trust qualified as sales for accounting purposes. However, the loans which are subject to a call option by Newcastle were not treated as being sold and are classified as “held for investment” subsequent to the completion of the securitizations. 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. The call options are “out of the money,” meaning that the price Newcastle would have to pay to acquire such loans exceeds their fair value at this time, and there is no requirement to exercise such options.

In both transactions, the residual interests and the retained bonds are reported as real estate securities, available for sale. The retained loans subject to call option and corresponding financing are reported as separate line items on Newcastle’s balance sheet.

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.

     Subprime Portfolio
     I   II

Date of acquisition

   March 2006   March 2007

Original number of loans (approximate)

   11,300   7,300

Predominant origination date of loans

   2005   2006

Original face amount of purchase

   $1.5 billion   $1.3 billion

Pre-securitization loan write-down

   ($4.1 million)   ($5.8 million)

Gain on pre-securitization hedge

   $5.5 million   $5.8 million

Gain on sale

   Less than $0.1 million   $0.1 million

Securitization date

   April 2006   July 2007

Face amount of loans at securitization

   $1.5 billion   $1.1 billion

Face amount of notes sold by trust

   $1.4 billion   $1.0 billion

Stated maturity of notes

   March 2036   April 2037

Face amount of notes retained by Newcastle

   $37.6 million   $38.8 million

Fair value of equity retained by Newcastle

   $62.4 million (A)   $46.7 million (A)

Key assumptions in measuring such fair value (A):

    

Weighted average life (years)

   3.1   3.8

Expected credit losses

   5.3%   8.0%

Weighted average constant prepayment rate

   28.0%   30.1%

Discount rate

   18.8%   22.5%

(A) As of the date of transfer.

The following table presents information on the retained interests in the securitizations of Subprime Portfolios I and II at December 31, 2011:

 

     Subprime Portfolio         
     I      II      Total  

Total securitized loans (unpaid principal balance) (A)

   $     476,525       $     619,793       $     1,096,318   

Loans subject to call option (carrying value)

   $ 299,176       $ 105,547       $ 404,723   

Retained interests (fair value) (B)

   $ 1,195       $ -       $ 1,195   

 

  (A) Average loan seasoning of 77 months and 59 months for Subprime Portfolios I and II, respectively, at December 31, 2011.

 

  (B) The retained interests include retained bonds of the securitizations. Their fair value is estimated based on pricing models. Newcastle’s residual interests were written off in 2010. The weighted average yield of the retained notes was 9.09% as of December 31, 2011.

The following table summarizes certain characteristics of the underlying subprime mortgage loans, and related financing, in the securitizations as of December 31, 2011 (unaudited, except stated otherwise):

 

     Subprime Portfolio  
     I      II  

Loan unpaid principal balance (UPB) (A)

   $     476,525       $     619,793   

Weighted average coupon rate of loans

     5.35%         4.74%   

Delinquencies of 60 or more days (UPB) (B)

   $ 118,818       $ 186,261   

Net credit losses for year ended

     

December 31, 2011

   $ 29,460       $ 54,217   

December 31, 2010

   $ 37,881       $ 64,389   

Cumulative net credit losses

   $ 192,869       $ 221,853   

Cumulative net credit losses as a % of original UPB

     12.8%         20.4%   

Percentage of ARM loans (C)

     52.4%         65.0%   

Percentage of loans with loan-to-value ratio >90%

     10.7%         17.2%   

Percentage of interest-only loans

     22.3%         4.3%   

Face amount of debt (A) (D)

   $ 472,525       $ 619,793   

Weighted average funding cost of debt (E)

     0.66%         1.36%   

 

  (A) Audited.
  (B) Delinquencies include loans 60 or more days past due, in foreclosure, under bankruptcy filing or real estate owned.
  (C) 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.
  (D) Excludes face amount of $4.0 million of retained notes for Subprime Portfolio I at December 31, 2011.
  (E) Includes the effect of applicable hedges.

Cash flows related to the two securitizations were as follows:

 

     Suprime Portfolio  
     I      II  

Net cash inflows from retained interests

     

Year Ended December 31, 2011

   $ 29       $ 77   

Year Ended December 31, 2010

   $ 315       $ 629   

Year Ended December 31, 2009

   $         878       $         1,461