FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
|
12 Months Ended |
Dec. 31, 2012
|
Fair Value Of Financial Instruments Tables |
|
Schedule Of Carrying Value and Fair Value Of Assets and Liabilities |
The carrying values and estimated fair values of Newcastle’s assets and liabilities at December 31, 2012 and 2011 were as follows:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Principal
|
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|
|
|
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|
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Weighted
|
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|
Weighted
|
|
|
|
|
|
|
|
|
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Balance or
|
|
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|
|
|
|
|
|
|
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Average
|
|
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Average
|
|
|
|
|
|
|
|
|
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Notional
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
Yield/Funding
|
|
|
Maturity
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Value
|
|
|
Fair Value
|
|
|
Fair Value Method (A)
|
|
Cost
|
|
|
(Years)
|
|
|
Value
|
|
|
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
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|
|
|
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Financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate securities, available-for-sale*
|
|
$ |
2,078,101 |
|
|
$ |
1,691,575 |
|
|
$ |
1,691,575 |
|
|
Broker quotations, counterparty quotations, pricing services, pricing models
|
|
|
4.69% |
|
|
|
4.0 |
|
|
$ |
1,731,744 |
|
|
$ |
1,731,744 |
|
Real estate related loans, held-for-sale, net
|
|
|
1,121,085 |
|
|
|
843,132 |
|
|
|
853,102 |
|
|
Broker quotations, counterparty quotations, pricing services, pricing models
|
|
|
12.15% |
|
|
|
2.6 |
|
|
|
813,580 |
|
|
|
819,249 |
|
Residential mortgage loans, held-for-investment, net
|
|
|
328,070 |
|
|
|
292,461 |
|
|
|
297,030 |
|
|
Pricing models
|
|
|
8.19% |
|
|
|
6.1 |
|
|
|
331,236 |
|
|
|
330,277 |
|
Residential mortgage loans, held-for-sale, net
|
|
|
3,645 |
|
|
|
2,471 |
|
|
|
2,471 |
|
|
Pricing models
|
|
|
17.00% |
|
|
|
4.7 |
|
|
|
2,687 |
|
|
|
2,687 |
|
Subprime mortgage loans subject to call option (B)
|
|
|
406,217 |
|
|
|
405,814 |
|
|
|
405,814 |
|
|
(B)
|
|
|
9.09% |
|
|
(B
|
) |
|
|
404,723 |
|
|
|
404,723 |
|
Restricted cash*
|
|
|
2,064 |
|
|
|
2,064 |
|
|
|
2,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
105,040 |
|
|
|
105,040 |
|
Cash and cash equivalents*
|
|
|
231,898 |
|
|
|
231,898 |
|
|
|
231,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
157,347 |
|
|
|
157,347 |
|
Derivative assets, treated as hedges (C)(E)*
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Counterparty quotations
|
|
|
N/A |
|
|
(C
|
) |
|
|
1,092 |
|
|
|
1,092 |
|
Non-hedge derivative assets (D)(E)*
|
|
|
23,400 |
|
|
|
165 |
|
|
|
165 |
|
|
Counterparty quotations
|
|
|
N/A |
|
|
(D
|
) |
|
|
862 |
|
|
|
862 |
|
Investments in real estate and intangibles, net
|
|
|
|
|
|
|
188,559 |
|
|
|
194,878 |
|
|
Broker quotations, recent purchase price
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Operating real estate, held-for-sale
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,741 |
|
|
|
7,741 |
|
Other investments
|
|
|
|
|
|
|
24,907 |
|
|
|
13,165 |
|
|
Pricing models
|
|
|
|
|
|
|
|
|
|
|
24,907 |
|
|
|
24,907 |
|
Receivables and other assets
|
|
|
|
|
|
|
17,197 |
|
|
|
17,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
26,854 |
|
|
|
26,854 |
|
Assets of discontinued operations
|
|
|
76,560,751 |
|
|
|
245,069 |
|
|
|
245,069 |
|
|
Pricing models
|
|
|
17.59% |
|
|
|
5.4 |
|
|
|
43,986 |
|
|
|
43,986 |
|
|
|
|
|
|
|
$ |
3,945,312 |
|
|
$ |
3,954,428 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,651,799 |
|
|
$ |
3,656,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Liabilities
|
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|
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Financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO bonds payable
|
|
$ |
1,090,915 |
|
|
$ |
1,091,354 |
|
|
$ |
781,856 |
|
|
Pricing models
|
|
|
2.08% |
|
|
|
2.5 |
|
|
$ |
2,403,605 |
|
|
$ |
1,500,307 |
|
Other bonds and notes payable
|
|
|
187,963 |
|
|
|
183,390 |
|
|
|
190,302 |
|
|
Broker quotations, pricing models
|
|
|
5.07% |
|
|
|
4.0 |
|
|
|
200,377 |
|
|
|
203,136 |
|
Repurchase agreements
|
|
|
929,435 |
|
|
|
929,435 |
|
|
|
929,435 |
|
|
Market comparables
|
|
|
0.81% |
|
|
|
0.1 |
|
|
|
239,740 |
|
|
|
239,740 |
|
Mortgage notes payable
|
|
|
120,525 |
|
|
|
120,525 |
|
|
|
120,525 |
|
|
Pricing models
|
|
|
3.79% |
|
|
|
5.8 |
|
|
|
— |
|
|
|
— |
|
Financing of subprime mortgage loans subject to call option (B)
|
|
|
406,217 |
|
|
|
405,814 |
|
|
|
405,814 |
|
|
(B)
|
|
|
9.09% |
|
|
(B
|
) |
|
|
404,723 |
|
|
|
404,723 |
|
Junior subordinated notes payable
|
|
|
51,004 |
|
|
|
51,243 |
|
|
|
31,545 |
|
|
Pricing models
|
|
|
7.40% |
|
|
|
22.3 |
|
|
|
51,248 |
|
|
|
30,145 |
|
Interest rate swaps, treated as hedges (C)(E)*
|
|
|
154,450 |
|
|
|
12,175 |
|
|
|
12,175 |
|
|
Counterparty quotations
|
|
|
N/A |
|
|
(C
|
) |
|
|
90,025 |
|
|
|
90,025 |
|
Non-hedge derivatives (D)(E)*
|
|
|
294,203 |
|
|
|
19,401 |
|
|
|
19,401 |
|
|
Counterparty quotations
|
|
|
N/A |
|
|
(D
|
) |
|
|
29,295 |
|
|
|
29,295 |
|
Due to affiliates
|
|
|
|
|
|
|
3,620 |
|
|
|
3,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,659 |
|
|
|
1,659 |
|
Dividends payable, accrued expenses and other liabilities
|
|
|
|
|
|
|
54,815 |
|
|
|
54,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
34,808 |
|
|
|
34,808 |
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
480 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,230 |
|
|
|
4,230 |
|
|
|
|
|
|
|
$ |
2,872,252 |
|
|
$ |
2,549,968 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,459,710 |
|
|
$ |
2,538,068 |
|
*Measured at fair value on a recurring basis.
(A)
|
Methods are listed in order of priority. In the case of real estate securities and real estate related loans, broker quotations are obtained if available and practicable, otherwise counterparty quotations or pricing service valuations are obtained or, finally, internal pricing models are used. Internal pricing models are only used for (i) securities and loans that are not traded in an active market, and, therefore, have little or no price transparency, and for which significant unobservable inputs must be used in estimating fair value, or (ii) loans or debt obligations which are private and untraded.
|
(B)
|
These two items results from an option, not an obligation, to repurchase loans from Newcastle’s subprime mortgage loan securitizations (Note 6), are noneconomic until such option is exercised, and are equal and offsetting.
|
(C) |
Represents derivative agreements as follows:
|
|
Year of Maturity
|
|
|
Weighted Average
Month of Maturity
|
|
|
Aggregate Notional
Amount |
|
|
Weighted Average Fixed
Pay Rate / Cap Rate
|
|
|
Aggregate Fair Value
Asset / (Liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements which receive 1-Month LIBOR:
|
|
|
|
|
|
|
|
|
2016
|
|
|
Apr
|
|
|
$ |
154,450
|
|
|
5.04%
|
|
|
$ |
(12,175)
|
(D) |
This represents two interest rate swap agreements with a total notional balance of $294.2 million, maturing in March 2014 and March 2015, respectively, and an interest rate cap agreement with a notional balance of $23.4 million, maturing in August 2019. Newcastle entered into these agreements to reduce its exposure to interest rate changes on the floating rate financings of CDO IV, CDO VI and the senior living assets. These derivative agreements were not designated as hedges for accounting purposes as of December 31, 2012.
|
(E)
|
Newcastle’s derivatives fall into two categories. As of December 31, 2012, all derivatives were held within Newcastle’s nonrecourse CDO structures. An aggregate notional balance of $448.7 million, which were liabilities at period end, is only subject to the credit risks of the respective CDO structures. As they are senior to all the debt obligations of the respective CDOs and the fair value of each of the CDOs’ total investments exceeded the fair value of each of the CDOs’ derivative liabilities, no credit valuation adjustments were recorded. A notional balance of $23.4 million was an asset at period end and therefore are subject to the counterparty’s credit risk. No adjustments have been made to the fair value quotations received related to credit risk as a result of the counterparty’s “AA” credit rating. Newcastle’s significant derivative counterparties include Bank of America, Credit Suisse, and Wells Fargo.
|
(F) |
Assets held within CDOs and other non-recourse structures are not available to satisfy obligations outside of such financings, except to the extent Newcastle receives net cash flow distributions from such structures. Furthermore, creditors or beneficial interest holders of these structures have no recourse to the general credit of Newcastle. Therefore, Newcastle’s exposure to the economic losses from such structures is limited to its invested equity in them and economically their book value cannot be less than zero. As a result, the fair value of Newcastle’s net investments in these non-recourse financing structures is equal to the present value of their expected future net cash flows.
|
(G) |
Newcastle notes that the unrealized gain on the liabilities within such structures cannot be fully realized.
|
(H) |
The notional amount represents the total unpaid principal balance of the mortgage loans on which Newcastle is entitled to receive 65% of the Excess MSRs on performing loans.
|
|
Schedule of Fair Value Of Derivative Assets and Liabilities |
(C) |
Represents derivative agreements as follows:
|
|
Year of Maturity
|
|
|
Weighted Average
Month of Maturity
|
|
|
Aggregate Notional
Amount |
|
|
Weighted Average Fixed
Pay Rate / Cap Rate
|
|
|
Aggregate Fair Value
Asset / (Liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements which receive 1-Month LIBOR:
|
|
|
|
|
|
|
|
|
2016
|
|
|
Apr
|
|
|
$ |
154,450
|
|
|
5.04%
|
|
|
$ |
(12,175)
|
|
Schedule of Fair Value of Assets and Liabilities Measured on a Recurring Basis |
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis at December 31, 2012:
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Principal Balance or Notional Amount
|
|
|
Carrying Value
|
|
|
Level 2
|
|
|
Level 3A
|
|
|
Level 3B
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate securities, available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
$ |
474,992 |
|
|
$ |
376,391 |
|
|
$ |
— |
|
|
$ |
330,026 |
|
|
$ |
46,365 |
|
|
$ |
376,391 |
|
REIT debt
|
|
|
62,700 |
|
|
|
66,174 |
|
|
|
66,174 |
|
|
|
— |
|
|
|
— |
|
|
|
66,174 |
|
ABS - subprime
|
|
|
558,215 |
|
|
|
355,975 |
|
|
|
— |
|
|
|
330,021 |
|
|
|
25,954 |
|
|
|
355,975 |
|
ABS - other real estate
|
|
|
10,098 |
|
|
|
1,475 |
|
|
|
— |
|
|
|
798 |
|
|
|
677 |
|
|
|
1,475 |
|
FNMA / FHLMC
|
|
|
768,619 |
|
|
|
820,535 |
|
|
|
820,535 |
|
|
|
— |
|
|
|
— |
|
|
|
820,535 |
|
CDO
|
|
|
203,477 |
|
|
|
71,025 |
|
|
|
— |
|
|
|
65,027 |
|
|
|
5,998 |
|
|
|
71,025 |
|
Real estate securities total
|
|
$ |
2,078,101 |
|
|
|
1,691,575 |
|
|
|
886,709 |
|
|
|
725,872 |
|
|
|
78,994 |
|
|
|
1,691,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Excess MSRs (1)
|
|
$ |
76,560,751 |
|
|
$ |
245,036 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
245,036 |
|
|
$ |
245,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps, not treated as hedges
|
|
$ |
23,400 |
|
|
$ |
165 |
|
|
$ |
165 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
165 |
|
Derivative assets total
|
|
$ |
23,400 |
|
|
$ |
165 |
|
|
$ |
165 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps, treated as hedges
|
|
$ |
154,450 |
|
|
$ |
12,175 |
|
|
$ |
12,175 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,175 |
|
Interest rate swaps, not treated as hedges
|
|
|
294,203 |
|
|
|
19,401 |
|
|
|
19,401 |
|
|
|
— |
|
|
|
— |
|
|
|
19,401 |
|
Derivative liabilities total
|
|
$ |
448,653 |
|
|
$ |
31,576 |
|
|
$ |
31,576 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
31,576 |
|
(1)
|
The notional amount represents the total unpaid principal balance of the mortgage loans. Generally, Newcastle does not receive an excess mortgage servicing amount on nonperforming loans.
|
|
Schedule of Change in Fair Value of Level 3 Investments |
|
Newcastle’s investments in instruments (excluding the Excess MSRs, see below) measured at fair value on a recurring basis using Level 3 inputs changed as follows:
|
|
|
Level 3A Assets
|
|
|
|
CMBS
|
|
ABS
|
|
Equity/Other
|
|
|
|
|
|
|
Conduit
|
|
|
Other
|
|
|
Subprime
|
|
|
Other
|
|
|
Securities
|
|
|
Total
|
|
Balance at December 31, 2010
|
|
$ |
840,227 |
|
|
$ |
331,904 |
|
|
$ |
83,582 |
|
|
$ |
36,193 |
|
|
$ |
— |
|
|
$ |
1,291,906 |
|
Transfers (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3B
|
|
|
41,158 |
|
|
|
25,000 |
|
|
|
19,950 |
|
|
|
718 |
|
|
|
2,641 |
|
|
|
89,467 |
|
Transfers into Level 3B
|
|
|
(88,464 |
) |
|
|
(24,826 |
) |
|
|
(15,031 |
) |
|
|
(7,548 |
) |
|
|
(2,475 |
) |
|
|
(138,344 |
) |
CDO V Deconsolidation
|
|
|
(59,970 |
) |
|
|
(55,838 |
) |
|
|
(5,107 |
) |
|
|
— |
|
|
|
— |
|
|
|
(120,915 |
) |
Total gains (losses) (B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (loss) (C)
|
|
|
42,597 |
|
|
|
579 |
|
|
|
(23 |
) |
|
|
(113 |
) |
|
|
— |
|
|
|
43,040 |
|
Included in other comprehensive income (loss)
|
|
|
(106,500 |
) |
|
|
38,583 |
|
|
|
(9,158 |
) |
|
|
(716 |
) |
|
|
(11,461 |
) |
|
|
(89,252 |
) |
Amortization included in interest income
|
|
|
23,878 |
|
|
|
5,883 |
|
|
|
5,210 |
|
|
|
338 |
|
|
|
3,376 |
|
|
|
38,685 |
|
Purchases, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
313,857 |
|
|
|
27,262 |
|
|
|
29,359 |
|
|
|
7,548 |
|
|
|
69,308 |
|
|
|
447,334 |
|
Proceeds from sales
|
|
|
(139,387 |
) |
|
|
(54,885 |
) |
|
|
(6,573 |
) |
|
|
— |
|
|
|
— |
|
|
|
(200,845 |
) |
Proceeds from repayments
|
|
|
(51,113 |
) |
|
|
(161,227 |
) |
|
|
(36,068 |
) |
|
|
(5,232 |
) |
|
|
(9,342 |
) |
|
|
(262,982 |
) |
Balance at December 31, 2011
|
|
$ |
816,283 |
|
|
$ |
132,435 |
|
|
$ |
66,141 |
|
|
$ |
31,188 |
|
|
$ |
52,047 |
|
|
$ |
1,098,094 |
|
|
|
Level 3B Assets
|
|
|
|
CMBS
|
|
ABS
|
|
Equity/Other
|
|
|
|
|
|
|
Conduit
|
|
|
Other
|
|
|
Subprime
|
|
|
Other
|
|
|
Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$ |
107,457 |
|
|
$ |
21,146 |
|
|
$ |
94,424 |
|
|
$ |
8,985 |
|
|
$ |
4,282 |
|
|
$ |
236,294 |
|
Transfers (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3A
|
|
|
88,464 |
|
|
|
24,826 |
|
|
|
15,031 |
|
|
|
7,548 |
|
|
|
2,475 |
|
|
|
138,344 |
|
Transfers into Level 3A
|
|
|
(41,158 |
) |
|
|
(25,000 |
) |
|
|
(19,950 |
) |
|
|
(718 |
) |
|
|
(2,641 |
) |
|
|
(89,467 |
) |
CDO V Deconsolidation
|
|
|
(32,289 |
) |
|
|
(1,908 |
) |
|
|
(14,568 |
) |
|
|
(3,833 |
) |
|
|
— |
|
|
|
(52,598 |
) |
Total gains (losses) (B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (loss) (C)
|
|
|
7,972 |
|
|
|
722 |
|
|
|
(1,332 |
) |
|
|
(287 |
) |
|
|
2,273 |
|
|
|
9,348 |
|
Included in other comprehensive income (loss)
|
|
|
32,374 |
|
|
|
1,743 |
|
|
|
3,766 |
|
|
|
(3,200 |
) |
|
|
(3,346 |
) |
|
|
31,337 |
|
Amortization included in interest income
|
|
|
17,055 |
|
|
|
163 |
|
|
|
8,796 |
|
|
|
911 |
|
|
|
617 |
|
|
|
27,542 |
|
Purchases, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
13,634 |
|
|
|
25,000 |
|
|
|
25 |
|
|
|
— |
|
|
|
10,192 |
|
|
|
48,851 |
|
Proceeds from sales
|
|
|
(27,400 |
) |
|
|
(721 |
) |
|
|
(8,624 |
) |
|
|
(348 |
) |
|
|
(3,884 |
) |
|
|
(40,977 |
) |
Proceeds from repayments
|
|
|
(25,487 |
) |
|
|
(6,493 |
) |
|
|
(15,087 |
) |
|
|
(2,139 |
) |
|
|
(6,029 |
) |
|
|
(55,235 |
) |
Balance at December 31, 2011
|
|
$ |
140,622 |
|
|
$ |
39,478 |
|
|
$ |
62,481 |
|
|
$ |
6,919 |
|
|
$ |
3,939 |
|
|
$ |
253,439 |
|
|
|
Level 3A Assets
|
|
|
|
CMBS
|
|
ABS
|
|
Equity/Other
|
|
|
|
|
|
|
Conduit
|
|
|
Other
|
|
|
Subprime
|
|
|
Other
|
|
|
Securities
|
|
|
Total
|
|
Balance at December 31, 2011
|
|
$ |
816,283 |
|
|
$ |
132,435 |
|
|
$ |
66,141 |
|
|
$ |
31,188 |
|
|
$ |
52,047 |
|
|
$ |
1,098,094 |
|
Transfers (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3B
|
|
|
6,056 |
|
|
|
21,823 |
|
|
|
28,048 |
|
|
|
— |
|
|
|
— |
|
|
|
55,927 |
|
Transfers into Level 3B
|
|
|
(28,467 |
) |
|
|
(14,105 |
) |
|
|
(11,057 |
) |
|
|
(5 |
) |
|
|
— |
|
|
|
(53,634 |
) |
CDO X Deconsolidation
|
|
|
(634,036 |
) |
|
|
(40,172 |
) |
|
|
(70,607 |
) |
|
|
(25,883 |
) |
|
|
— |
|
|
|
(770,698 |
) |
Total gains (losses) (B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (loss) (C)
|
|
|
1,190 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
1,182 |
|
Included in other comprehensive income (loss)
|
|
|
32,373 |
|
|
|
11,490 |
|
|
|
26,159 |
|
|
|
(629 |
) |
|
|
12,823 |
|
|
|
82,216 |
|
Amortization included in interest income
|
|
|
24,845 |
|
|
|
1,410 |
|
|
|
10,805 |
|
|
|
(11 |
) |
|
|
5,211 |
|
|
|
42,260 |
|
Purchases, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
71,968 |
|
|
|
— |
|
|
|
315,475 |
|
|
|
— |
|
|
|
— |
|
|
|
387,443 |
|
Proceeds from sales
|
|
|
(24,551 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24,551 |
) |
Proceeds from repayments
|
|
|
(40,086 |
) |
|
|
(8,430 |
) |
|
|
(34,935 |
) |
|
|
(3,862 |
) |
|
|
(5,054 |
) |
|
|
(92,367 |
) |
Balance at December 31, 2012
|
|
$ |
225,575 |
|
|
$ |
104,451 |
|
|
$ |
330,021 |
|
|
$ |
798 |
|
|
$ |
65,027 |
|
|
$ |
725,872 |
|
|
|
Level 3B Assets
|
|
|
|
CMBS
|
|
ABS
|
|
Equity/Other
|
|
|
|
|
|
|
Conduit
|
|
|
Other
|
|
|
Subprime
|
|
|
Other
|
|
|
Securities
|
|
|
Total
|
|
Balance at December 31, 2011
|
|
$ |
140,622 |
|
|
$ |
39,478 |
|
|
$ |
62,481 |
|
|
$ |
6,919 |
|
|
$ |
3,939 |
|
|
$ |
253,439 |
|
Transfers (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3A
|
|
|
28,467 |
|
|
|
14,105 |
|
|
|
11,057 |
|
|
|
5 |
|
|
|
— |
|
|
|
53,634 |
|
Transfers into Level 3A
|
|
|
(6,056 |
) |
|
|
(21,823 |
) |
|
|
(28,048 |
) |
|
|
— |
|
|
|
— |
|
|
|
(55,927 |
) |
CDO X Deconsolidation
|
|
|
(133,624 |
) |
|
|
— |
|
|
|
(16,097 |
) |
|
|
(291 |
) |
|
|
— |
|
|
|
(150,012 |
) |
Total gains (losses) (B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (loss) (C)
|
|
|
(6,137 |
) |
|
|
(396 |
) |
|
|
836 |
|
|
|
(4,092 |
) |
|
|
— |
|
|
|
(9,789 |
) |
Included in other comprehensive income (loss)
|
|
|
(9,836 |
) |
|
|
1,025 |
|
|
|
2,414 |
|
|
|
2,368 |
|
|
|
2,302 |
|
|
|
(1,727 |
) |
Amortization included in interest income
|
|
|
8,693 |
|
|
|
367 |
|
|
|
6,886 |
|
|
|
299 |
|
|
|
446 |
|
|
|
16,691 |
|
Purchases, sales and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
44,119 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,119 |
|
Proceeds from sales
|
|
|
(18,708 |
) |
|
|
— |
|
|
|
(3,295 |
) |
|
|
(3,743 |
) |
|
|
— |
|
|
|
(25,746 |
) |
Proceeds from repayments
|
|
|
(18,346 |
) |
|
|
(15,585 |
) |
|
|
(10,280 |
) |
|
|
(788 |
) |
|
|
(689 |
) |
|
|
(45,688 |
) |
Balance at December 31, 2012
|
|
$ |
29,194 |
|
|
$ |
17,171 |
|
|
$ |
25,954 |
|
|
$ |
677 |
|
|
$ |
5,998 |
|
|
$ |
78,994 |
|
(A)
|
Transfers are assumed to occur at the beginning of the quarter. CDO V was deconsolidated on June 17, 2011 and CDO X was deconsolidated on September 12, 2012.
|
(B)
|
None of the gains (losses) recorded in earnings during the periods is attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates.
|
(C)
|
These gains (losses) are recorded in the following line items in the consolidated statements of income:
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
Level 3A
|
|
|
Level 3B
|
|
|
Level 3A
|
|
|
Level 3B
|
|
Gain (loss) on settlement of investments, net
|
|
$ |
1,196 |
|
|
$ |
9,000 |
|
|
$ |
44,560 |
|
|
$ |
22,895 |
|
Other income (loss), net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
OTTI
|
|
|
(14 |
) |
|
|
(18,789 |
) |
|
|
(1,520 |
) |
|
|
(13,547 |
) |
Total
|
|
$ |
1,182 |
|
|
$ |
(9,789 |
) |
|
$ |
43,040 |
|
|
$ |
9,348 |
|
Gain (loss) on sale of investments, net, from investments transferred into Level 3 during the period
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Schedule of Gains Losses on Fair Value of RE Securities |
(C)
|
These gains (losses) are recorded in the following line items in the consolidated statements of income:
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
Level 3A
|
|
|
Level 3B
|
|
|
Level 3A
|
|
|
Level 3B
|
|
Gain (loss) on settlement of investments, net
|
|
$ |
1,196 |
|
|
$ |
9,000 |
|
|
$ |
44,560 |
|
|
$ |
22,895 |
|
Other income (loss), net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
OTTI
|
|
|
(14 |
) |
|
|
(18,789 |
) |
|
|
(1,520 |
) |
|
|
(13,547 |
) |
Total
|
|
$ |
1,182 |
|
|
$ |
(9,789 |
) |
|
$ |
43,040 |
|
|
$ |
9,348 |
|
Gain (loss) on sale of investments, net, from investments transferred into Level 3 during the period
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Schedule of Securities Valuation Methodology And Results |
As of December 31, 2012, Newcastle’s securities valuation methodology and results are further detailed as follows:
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Outstanding
|
|
|
Amortized
|
|
|
|
|
|
|
|
|
Internal
|
|
|
|
|
|
|
Face
|
|
|
Cost
|
|
|
Multiple
|
|
|
Single
|
|
|
Pricing
|
|
|
|
|
Asset Type
|
|
Amount (A)
|
|
|
Basis (B)
|
|
|
Quotes (C)
|
|
|
Quote (D)
|
|
|
Models (E)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
$ |
474,992 |
|
|
$ |
336,966 |
|
|
$ |
255,784 |
|
|
$ |
74,242 |
|
|
$ |
46,365 |
|
|
$ |
376,391 |
|
REIT debt
|
|
|
62,700 |
|
|
|
62,069 |
|
|
|
34,809 |
|
|
|
31,365 |
|
|
|
— |
|
|
|
66,174 |
|
ABS - subprime
|
|
|
558,215 |
|
|
|
321,801 |
|
|
|
290,731 |
|
|
|
39,290 |
|
|
|
25,954 |
|
|
|
355,975 |
|
ABS - other real estate
|
|
|
10,098 |
|
|
|
1,547 |
|
|
|
— |
|
|
|
798 |
|
|
|
677 |
|
|
|
1,475 |
|
FNMA / FHLMC
|
|
|
768,619 |
|
|
|
818,866 |
|
|
|
395,131 |
|
|
|
425,404 |
|
|
|
— |
|
|
|
820,535 |
|
CDO
|
|
|
203,477 |
|
|
|
67,538 |
|
|
|
— |
|
|
|
65,027 |
|
|
|
5,998 |
|
|
|
71,025 |
|
Total
|
|
$ |
2,078,101 |
|
|
$ |
1,608,787 |
|
|
$ |
976,455 |
|
|
$ |
636,126 |
|
|
$ |
78,994 |
|
|
$ |
1,691,575 |
|
|
Net of discounts (or gross premiums) and after OTTI, including impairment taken during the period ended December 31, 2012.
|
(C)
|
Management generally obtained pricing service quotations or broker quotations from two sources, one of which was generally the seller (the party that sold us the security). Management selected one of the quotes received as being most representative of fair value and did not use an average of the quotes. Even if Newcastle receives two or more quotes on a particular security that come from non-selling brokers or pricing services, it does not use an average because management believes using an actual quote more closely represents a transactable price for the security than an average level. Furthermore, in some cases there is a wide disparity between the quotes Newcastle receives. Management believes using an average of the quotes in these cases would generally not represent the fair value of the asset. Based on Newcastle’s own fair value analysis using internal models, management selects one of the quotes which is believed to more accurately reflect fair value. Newcastle never adjusts quotes received. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” – meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price.
|
(D)
|
Management was unable to obtain quotations from more than one source on these securities. The one source was generally the seller (the party that sold us the security) or a pricing service.
|
(E)
|
Securities whose fair value was estimated based on internal pricing models are further detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Impairment
|
|
|
Gains (Losses)
|
|
|
Weighted Average Significant Input
|
|
|
|
Cost
|
|
|
Fair
|
|
|
Recorded in
|
|
|
in Accumulated
|
|
|
Discount
|
|
|
Prepayment
|
|
|
Cumulative
|
|
|
Loss
|
|
Asset Type
|
|
Basis (B)
|
|
|
Value
|
|
|
Current Year
|
|
|
OCI
|
|
|
Rate
|
|
|
Speed (F)
|
|
|
Default Rate
|
|
|
Severity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS - conduit
|
|
$ |
23,648 |
|
|
$ |
29,193 |
|
|
$ |
4,418 |
|
|
$ |
5,545 |
|
|
|
10 |
% |
|
|
N/A |
|
|
|
21 |
% |
|
|
39 |
% |
CMBS - Large loan
/ single borrower
|
|
|
18,326 |
|
|
|
17,172 |
|
|
|
— |
|
|
|
(1,154 |
) |
|
|
6 |
% |
|
|
N/A |
|
|
|
18 |
% |
|
|
40 |
% |
ABS - subprime
|
|
|
13,741 |
|
|
|
25,954 |
|
|
|
719 |
|
|
|
12,213 |
|
|
|
8 |
% |
|
|
2 |
% |
|
|
60 |
% |
|
|
75 |
% |
ABS - other real estate
|
|
|
455 |
|
|
|
677 |
|
|
|
64 |
|
|
|
222 |
|
|
|
8 |
% |
|
|
0 |
% |
|
|
44 |
% |
|
|
100 |
% |
CDO
|
|
|
3,979 |
|
|
|
5,998 |
|
|
|
— |
|
|
|
2,019 |
|
|
|
18 |
% |
|
|
4 |
% |
|
|
69 |
% |
|
|
93 |
% |
Total
|
|
$ |
60,149 |
|
|
$ |
78,994 |
|
|
$ |
5,201 |
|
|
$ |
18,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the significant inputs listed have some degree of market observability, based on Newcastle’s knowledge of the market, relationships with market participants, and use of common market data sources. Collateral prepayment, default and loss severity projections are in the form of “curves” or “vectors” that vary for each monthly collateral cash flow projection. Methods used to develop these projections vary by asset class (e.g., CMBS projections are developed differently than Home Equity ABS projections) but conform to industry conventions. Newcastle uses assumptions that generate its best estimate of future cash flows of each respective security.
The prepayment vector specifies the percentage of the collateral balance that is expected to voluntarily pay off at each point in the future. The prepayment vector is based on projections from a widely published investment bank model, which considers factors such as collateral FICO score, loan-to-value ratio, debt-to-income ratio, and vintage on a loan level basis. This vector is scaled up or down to match recent collateral-specific prepayment experience, as obtained from remittance reports and market data services.
Loss severities are based on recent collateral-specific experience with additional consideration given to collateral characteristics. Collateral age is taken into consideration because severities tend to initially increase with collateral age before eventually stabilizing. Newcastle typically uses projected severities that are higher than the historic experience for collateral that is relatively new to account for this effect. Collateral characteristics such as loan size, lien position, and location (state) also effect loss severity. Newcastle considers whether a collateral pool has experienced a significant change in its composition with respect to these factors when assigning severity projections.
Default vectors are determined from the current “pipeline” of loans that are more than 90 days delinquent, in foreclosure, or are real estate owned (REO). These significantly delinquent loans determine the first 24 months of the default vector. Beyond month 24, the default vector transitions to a steady-state value that is generally equal to or greater than that given by the widely published investment bank model.
The discount rates Newcastle uses are derived from a range of observable pricing on securities backed by similar collateral and offered in a live market. As the markets in which Newcastle transacts have become less liquid, Newcastle has had to rely on fewer data points in this analysis.
(F)
|
Projected annualized average prepayment rate.
|
|
Securities valued based on internal pricing models |
(E)
|
Securities whose fair value was estimated based on internal pricing models are further detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Impairment
|
|
|
Gains (Losses)
|
|
|
Weighted Average Significant Input
|
|
|
|
Cost
|
|
|
Fair
|
|
|
Recorded in
|
|
|
in Accumulated
|
|
|
Discount
|
|
|
Prepayment
|
|
|
Cumulative
|
|
|
Loss
|
|
Asset Type
|
|
Basis (B)
|
|
|
Value
|
|
|
Current Year
|
|
|
OCI
|
|
|
Rate
|
|
|
Speed (F)
|
|
|
Default Rate
|
|
|
Severity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS - conduit
|
|
$ |
23,648 |
|
|
$ |
29,193 |
|
|
$ |
4,418 |
|
|
$ |
5,545 |
|
|
|
10 |
% |
|
|
N/A |
|
|
|
21 |
% |
|
|
39 |
% |
CMBS - Large loan
/ single borrower
|
|
|
18,326 |
|
|
|
17,172 |
|
|
|
— |
|
|
|
(1,154 |
) |
|
|
6 |
% |
|
|
N/A |
|
|
|
18 |
% |
|
|
40 |
% |
ABS - subprime
|
|
|
13,741 |
|
|
|
25,954 |
|
|
|
719 |
|
|
|
12,213 |
|
|
|
8 |
% |
|
|
2 |
% |
|
|
60 |
% |
|
|
75 |
% |
ABS - other real estate
|
|
|
455 |
|
|
|
677 |
|
|
|
64 |
|
|
|
222 |
|
|
|
8 |
% |
|
|
0 |
% |
|
|
44 |
% |
|
|
100 |
% |
CDO
|
|
|
3,979 |
|
|
|
5,998 |
|
|
|
— |
|
|
|
2,019 |
|
|
|
18 |
% |
|
|
4 |
% |
|
|
69 |
% |
|
|
93 |
% |
Total
|
|
$ |
60,149 |
|
|
$ |
78,994 |
|
|
$ |
5,201 |
|
|
$ |
18,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule of fair value for real estate related loans and residential mortgage loans held for sale |
The following tables summarize certain information for real estate related loans and residential mortgage loans held-for-sale as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
Significant Input
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
Allowance/
|
|
|
Range
|
|
Weighted Average
|
|
|
Face
|
|
|
Carrying
|
|
|
Fair
|
|
|
(Reversal) In
|
|
|
Discount
|
|
Loss
|
|
Discount
|
|
Loss
|
Loan Type
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
Current Year
|
|
|
Rate
|
|
Severity
|
|
Rate
|
|
Severity
|
Mezzanine
|
|
$ |
527,793 |
|
|
$ |
442,529 |
|
|
$ |
451,812 |
|
|
$ |
4,049 |
|
|
6.5% - 25.0% |
|
0.0% - 100.0% |
|
10.1% |
|
10.6% |
Bank Loan
|
|
|
391,904 |
|
|
|
208,863 |
|
|
|
208,863 |
|
|
|
(19,123 |
) |
|
6.3% - 36.3% |
|
0.0% - 100.0% |
|
18.9% |
|
37.6% |
B-Note
|
|
|
171,258 |
|
|
|
161,610 |
|
|
|
162,285 |
|
|
|
(13,139 |
) |
|
8.0% - 15.0% |
|
0.0% |
|
10.4% |
|
0.0% |
Whole Loan
|
|
|
30,130 |
|
|
|
30,130 |
|
|
|
30,142 |
|
|
|
— |
|
|
5.1% - 7.1% |
|
0.0% - 15.0% |
|
5.2% |
|
14.5% |
Total Real Estate Related Loans Held for Sale, Net
|
|
$ |
1,121,085 |
|
|
$ |
843,132 |
|
|
$ |
853,102 |
|
|
$ |
(28,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
Allowance/
|
|
|
Significant Input (Weighted Average)
|
|
|
Face
|
|
|
Carrying
|
|
|
Fair
|
|
|
(Reversal) In
|
|
|
Discount
|
|
Prepayment
|
|
Cumulative
|
|
Loss
|
Loan Type
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
Current Year
|
|
|
Rate
|
|
Speed
|
|
Default Rate
|
|
Severity
|
Non-securitized Manufactured Housing Loans I
|
|
$ |
573 |
|
|
$ |
163 |
|
|
$ |
163 |
|
|
$ |
3 |
|
|
38.8% |
|
0.0% |
|
52.9% |
|
75.0% |
Non-securitized Manufactured Housing Loans II
|
|
|
3,072 |
|
|
|
2,308 |
|
|
|
2,308 |
|
|
|
(496 |
) |
|
15.5% |
|
5.0% |
|
3.5% |
|
80.0% |
Total Residential Mortgage Loans Held for Sale, Net
|
|
$ |
3,645 |
|
|
$ |
2,471 |
|
|
$ |
2,471 |
|
|
$ |
(493 |
) |
|
|
|
|
|
|
|
|
|
Schedule of fair value for residential mortgage loans held for investment |
The following table summarizes certain information for residential mortgage loans held-for-investment as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Input (Weighted Average)
|
Loan Type
|
|
Outstanding Face Amount
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Valuation Allowance/
(Reversal) In Current Year
|
|
|
Discount Rate
|
|
Prepayment Speed
|
|
Constant Default Rate
|
|
Loss Severity
|
Securitized Manufactured Housing Loans I
|
|
$ |
118,746 |
|
|
$ |
100,124 |
|
|
$ |
99,964 |
|
|
$ |
(49 |
) |
|
9.5% |
|
4.0% |
|
4.0% |
|
75.0% |
Securitized Manufactured Housing Loans II
|
|
|
153,193 |
|
|
|
150,123 |
|
|
|
148,441 |
|
|
|
3,926 |
|
|
7.5% |
|
5.0% |
|
3.5% |
|
80.0% |
Residential Loans
|
|
|
56,131 |
|
|
|
42,214 |
|
|
|
48,625 |
|
|
|
242 |
|
|
7.4% |
|
4.7% |
|
2.8% |
|
46.6% |
Total Residential Mortgage Loans, Held-for-Investment, Net
|
|
$ |
328,070 |
|
|
$ |
292,461 |
|
|
$ |
297,030 |
|
|
$ |
4,119 |
|
|
|
|
|
|
|
|
|
|
Schedule of Fair Value Inputs in Valuing Excess MSRs |
The following table summarizes certain information regarding the inputs used in valuing the Excess MSRs investments as of December 31, 2012:
|
|
Significant Input Ranges
|
|
|
|
Prepayment
Speed (A)
|
|
|
Delinquency
(B)
|
|
|
Recapture Rate
(C)
|
|
|
Excess Mortgage
Servicing Amount
(D)
|
|
Discount Rate
|
|
MSR Pool 1
|
|
|
17.1 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
29 bps
|
|
|
18.0 |
% |
MSR Pool 1 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
18.0 |
% |
MSR Pool 2
|
|
|
16.7 |
% |
|
|
11.0 |
% |
|
|
35.0 |
% |
|
23 bps
|
|
|
17.3 |
% |
MSR Pool 2 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
17.3 |
% |
MSR Pool 3
|
|
|
16.9 |
% |
|
|
12.1 |
% |
|
|
35.0 |
% |
|
23 bps
|
|
|
17.6 |
% |
MSR Pool 3 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
17.6 |
% |
MSR Pool 4
|
|
|
18.6 |
% |
|
|
15.9 |
% |
|
|
35.0 |
% |
|
17 bps
|
|
|
17.9 |
% |
MSR Pool 4 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
35.0 |
% |
|
21 bps
|
|
|
17.9 |
% |
MSR Pool 5
|
|
|
15.0 |
% |
|
|
N/A |
(E) |
|
|
20.0 |
% |
|
13 bps
|
|
|
17.5 |
% |
MSR Pool 5 - Recapture Agreement
|
|
|
8.0 |
% |
|
|
N/A |
(E) |
|
|
20.0 |
% |
|
21 bps
|
|
|
17.5 |
% |
(A) Projected annualized weighted average voluntary and involuntary prepayment rate using a prepayment vector.
(B) Projected percentage of mortgage loans in the pool that are expected to miss their mortgage payments.
(C) Percentage of voluntarily prepaid loans that are expected to be refinanced by Nationstar.
(D) Weighted average total mortgage servicing amount in excess of the basic fee.
(E) The Excess MSR will be paid on the total UPB of the mortgage portfolio (including both performing and delinquent loans until REO)
|
Schedule of MSRs valued on a recurring basis using Level 3B inputs |
Newcastle’s MSRs investments measured at fair value on a recurring basis using Level 3B inputs changed as follows:
|
|
Level 3B (A)
|
|
|
|
MSR Pool 1
|
|
|
MSR Pool 2
|
|
|
MSR Pool 3
|
|
|
MSR Pool 4
|
|
|
MSR Pool 5
|
|
|
Total
|
|
Balance at December 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers (B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3A
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfers into Level 3A
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gains (losses) included in net income (C)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest income
|
|
|
367 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
367 |
|
Purchases, sales and repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
43,742 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43,742 |
|
Purchase adjustments
|
|
|
1,260 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,260 |
|
Proceeds from sales
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Proceeds from repayments
|
|
|
(1,398 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,398 |
) |
Balance at December 30, 2011
|
|
$ |
43,971 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
43,971 |
|
Transfers (B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3A
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfers into Level 3A
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gains (losses) included in net income (C)
|
|
|
5,877 |
|
|
|
1,226 |
|
|
|
2,780 |
|
|
|
1,004 |
|
|
|
(1,864 |
) |
|
|
9,023 |
|
Interest income
|
|
|
7,955 |
|
|
|
3,450 |
|
|
|
3,409 |
|
|
|
1,381 |
|
|
|
11,293 |
|
|
|
27,488 |
|
Purchases, sales and repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
— |
|
|
|
43,872 |
|
|
|
36,218 |
|
|
|
15,439 |
|
|
|
124,813 |
|
|
|
220,342 |
|
Purchase adjustments
|
|
|
(178 |
) |
|
|
(1,522 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,700 |
) |
Proceeds from sales
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Proceeds from repayments
|
|
|
(16,715 |
) |
|
|
(7,704 |
) |
|
|
(6,973 |
) |
|
|
(2,788 |
) |
|
|
(19,908 |
) |
|
|
(54,088 |
) |
Balance at December 31, 2012
|
|
$ |
40,910 |
|
|
$ |
39,322 |
|
|
$ |
35,434 |
|
|
$ |
15,036 |
|
|
$ |
114,334 |
|
|
$ |
245,036 |
|
|
(A)
|
Includes the recapture agreement for each respective pool.
|
|
(B)
|
Transfers are assumed to occur at the beginning of the quarter.
|
|
(C)
|
The gains (losses) recorded in earnings during the period are attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting dates. These gains (losses) are recorded in “Change in fair value of investments in excess mortgage servicing rights” in the consolidated statement of income.
|
|
Schedule of Fair Value of Derivatives |
Newcastle’s derivatives are recorded on its balance sheet as follows:
|
|
|
Fair Value
|
|
|
|
|
December 31,
|
|
|
Balance sheet location
|
|
2012
|
|
|
2011
|
|
Derivative Assets
|
|
|
|
|
|
|
|
Interest rate caps, designated as hedges
|
Derivative Assets
|
|
$ |
— |
|
|
$ |
1,092 |
|
Interest rate caps, not designated as hedges
|
Derivative Assets
|
|
|
165 |
|
|
|
862 |
|
|
|
|
$ |
165 |
|
|
$ |
1,954 |
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
Interest rate swaps, designated as hedges
|
Derivative Liabilities
|
|
$ |
12,175 |
|
|
$ |
90,025 |
|
Interest rate swaps, not designated as hedges
|
Derivative Liabilities
|
|
|
19,401 |
|
|
|
29,295 |
|
|
|
|
$ |
31,576 |
|
|
$ |
119,320 |
|
|
Schedule of Outstanding Derivatives |
The following table summarizes information related to derivatives:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flow hedges
|
|
|
|
|
|
|
Notional amount of interest rate swap agreements
|
|
$ |
154,450 |
|
|
$ |
848,434 |
|
Notional amount of interest rate cap agreements
|
|
|
— |
|
|
|
104,205 |
|
Amount of (loss) recognized in OCI on effective portion
|
|
|
(12,050 |
) |
|
|
(69,908 |
) |
|
|
|
|
|
|
|
|
|
Deferred hedge gain (loss) related to anticipated financings,
which have subsequently occurred, net of amortization
|
|
|
237 |
|
|
|
299 |
|
Deferred hedge gain (loss) related to dedesignation,
net of amortization
|
|
|
(210 |
) |
|
|
(893 |
) |
Expected reclassification of deferred hedges from AOCI into
earnings over the next 12 months
|
|
|
4 |
|
|
|
1,688 |
|
|
|
|
|
|
|
|
|
|
Expected reclassification of current hedges from AOCI into
earnings over the next 12 months
|
|
|
(6,259 |
) |
|
|
(35,348 |
) |
|
|
|
|
|
|
|
|
|
Non-hedge Derivatives
|
|
|
|
|
|
|
|
|
Notional amount of interest rate swap agreements
|
|
|
294,203 |
|
|
|
316,600 |
|
Notional amount of interest rate cap agreements
|
|
|
23,400 |
|
|
|
36,428 |
|
|
Schedule of Gain Loss on Derivatives |
The following table summarizes gains (losses) recorded in relation to derivatives:
|
Income Statement
|
|
Year Ended December 31,
|
|
|
Location
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on the ineffective portion
|
Other Income (Loss)
|
|
$ |
483 |
|
|
$ |
(917 |
) |
|
$ |
580 |
|
Gain (loss) immediately recognized at dedesignation
|
Gain (Loss) on Sale
of Investments,
Other Income (Loss)
|
|
|
(7,036 |
) |
|
|
(13,939 |
) |
|
|
(39,184 |
) |
Amount of gain (loss) reclassified from AOCI into income, related to effective portion
|
Interest Expense
|
|
|
(30,631 |
) |
|
|
(63,350 |
) |
|
|
(83,869 |
) |
Deferred hedge gain reclassified from AOCI into income, related to anticipated financings
|
Interest Expense
|
|
|
61 |
|
|
|
58 |
|
|
|
475 |
|
Deferred hedge gain (loss) reclassified from AOCI into income, related to effective portion of dedesignated hedges
|
Interest Expense
|
|
|
1,189 |
|
|
|
2,259 |
|
|
|
(5,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedge derivatives gain (loss)
|
Other Income (Loss)
|
|
|
9,101 |
|
|
|
3,284 |
|
|
|
(1,240 |
) |
|