REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS, CDO SERVICING RIGHTS AND INVESTMENTS IN EXCESS MORTGAGE SERVICING RIGHTS
|3 Months Ended|
Mar. 31, 2012
|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||
4. 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 at March 31, 2012. 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.
The following is a summary of real estate related loans by maturities at March 31, 2012:
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.
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. 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 three months ended March 31, 2012 and 2011, respectively, Newcastle recorded $0.08 million and $0.04 million of servicing rights amortization and no servicing rights impairment. As of March 31, 2012, Newcastles servicing asset had a carrying value of $2.0 million recorded in Receivables and Other Assets.
Investments in Excess Mortgage Servicing Rights
In December 2011, Newcastle entered into an agreement (MSR Agreement I) with Nationstar Mortgage LLC (Nationstar), an affiliate of Newcastles 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 (MSR Portfolio I) on September 30, 2011. Nationstar is entitled to receive an initial weighted average total mortgage servicing amount of 35 basis points (bps) on the performing unpaid principal balance, as well as any ancillary income from MSR Portfolio I. Pursuant to MSR Agreement I, Nationstar performs all servicing functions and advancing functions related to MSR Portfolio I for a base mortgage servicing fee of 6 bps. Therefore, the remainder, or Excess MSRs are initially equal to a weighted average of 29 bps. Newcastle acquired the right to receive 65% of the excess mortgage servicing amount on MSR Portfolio I and, subject to certain limitations and pursuant to a loan replacement agreement (the Recapture Agreement), 65% of the excess mortgage servicing amount on certain future mortgage loans originated by Nationstar, that represent refinancings of loans in MSR Portfolio I (which loans then become part of MSR Portfolio I) for $43.7 million. Nationstar has co-invested, pari passu with Newcastle, in 35% of the Excess MSRs. Nationstar, as servicer, also retains the ancillary income, the servicing obligations and liabilities as the servicer. If Nationstar is terminated as the servicer, Newcastles right to receive its portion of the excess mortgage servicing amount 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 Newcastles excess MSRs:
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSRs at March 31, 2012 (in thousands):
Geographic concentrations of investments expose Newcastle to the risk of economic downturns within the relevant states. Any such downturn in a state where Newcastle holds significant investments could affect the underlying borrowers ability to make the mortgage payment and therefore could have a meaningful, negative impact on Newcastles excess MSRs.
See note 11 regarding the agreement to acquire an additional portfolio of Excess MSRs.
Securitization of Subprime Mortgage Loans
The following table presents information on the retained interests in Newcastles securitizations of subprime mortgage loans at March 31, 2012:
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 March 31, 2012:
Newcastle received negligible cash inflows from the retained interests of Subprime Portfolios I and II during the three months ended March 31, 2012 and 2011.
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 entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.
Reference 1: http://www.xbrl.org/2003/role/presentationRef