| REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS, SUBPRIME MORTGAGE LOANS |
4. REAL ESTATE RELATED LOANS, RESIDENTIAL MORTGAGE LOANS AND SUBPRIME MORTGAGE LOANS
The following is a summary of real estate related loans, residential mortgage loans and subprime mortgage loans at March 31, 2013. 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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Weighted
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Floating Rate
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Wtd.
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Weighted
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Average
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Loans as a %
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Delinquent
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Outstanding
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Carrying
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Loan
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Avg.
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Average
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Maturity
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of Face
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Face Amount
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Loan Type
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Face Amount
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Value (A)
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Count
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Yield
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Coupon
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(Years) (B)
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Amount
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(C)
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Mezzanine Loans
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$ |
518,307 |
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$ |
432,432 |
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17 |
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9.05 |
% |
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8.96 |
% |
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1.5 |
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66.6 |
% |
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$ |
12,000 |
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Corporate Bank Loans
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582,474 |
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277,831 |
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7 |
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16.65 |
% |
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6.70 |
% |
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1.8 |
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63.8 |
% |
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— |
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B-Notes
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120,872 |
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111,237 |
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5 |
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10.42 |
% |
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5.14 |
% |
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1.1 |
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81.0 |
% |
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— |
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Whole Loans
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30,025 |
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30,025 |
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2 |
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4.82 |
% |
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3.80 |
% |
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0.9 |
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97.0 |
% |
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— |
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Total Real Estate Related Loans Held-for-Sale, Net
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$ |
1,251,678 |
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$ |
851,525 |
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31 |
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11.56 |
% |
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7.42 |
% |
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1.6 |
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67.4 |
% |
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$ |
12,000 |
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Non-Securitized Manufactured Housing Loan Portfolio I
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$ |
569 |
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$ |
153 |
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15 |
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68.24 |
% |
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7.76 |
% |
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0.9 |
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0.0 |
% |
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$ |
56 |
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Non-Securitized Manufactured Housing Loan Portfolio II
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2,882 |
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2,227 |
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111 |
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15.47 |
% |
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10.04 |
% |
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5.4 |
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9.5 |
% |
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207 |
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Total Residential Mortgage Loans Held-for-Sale, Net (D)
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$ |
3,451 |
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$ |
2,380 |
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126 |
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18.86 |
% |
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9.66 |
% |
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4.7 |
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7.9 |
% |
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$ |
263 |
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Securitized Manufactured Housing Loan Portfolio I (D)(E)
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$ |
114,355 |
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$ |
96,752 |
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3,073 |
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9.45 |
% |
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8.63 |
% |
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6.3 |
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0.7 |
% |
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$ |
1,055 |
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Securitized Manufactured Housing Loan Portfolio II (D)(E)
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146,865 |
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144,274 |
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5,205 |
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7.54 |
% |
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9.64 |
% |
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5.5 |
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16.6 |
% |
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2,489 |
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Residential Loans (D)(E)
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54,458 |
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41,198 |
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191 |
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7.40 |
% |
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2.44 |
% |
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6.0 |
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100.0 |
% |
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6,988 |
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Reverse Mortgage Loans (F)
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58,586 |
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35,484 |
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331 |
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11.81 |
% |
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5.15 |
% |
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3.9 |
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21.0 |
% |
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N/A |
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Total Residential Mortgage Loans Held-for-Investment, Net
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$ |
374,264 |
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$ |
317,708 |
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8,800 |
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8.58 |
% |
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7.58 |
% |
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5.6 |
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24.6 |
% |
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$ |
10,532 |
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Subprime Mortgage Loans Subject to Call Option
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$ |
406,217 |
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$ |
406,115 |
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(A)
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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.
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(B)
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The weighted average maturity is based on the timing of expected principal reduction on the assets.
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(C)
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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 March 31, 2013, $139.2 million face amount of real estate related loans was on non-accrual status.
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(D)
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Loans acquired at a discount for credit quality.
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(E)
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The following is an aging analysis of past due residential loans held-for-investment as of March 31, 2013:
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30-59 Days
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60-89 Days
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Over 90 Days
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Total Past
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Total Outstanding
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Past Due
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Past Due
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Past Due
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REO
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Due
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Current
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Face Amount
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Securitized Manufactured Housing Loan Portfolio I
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$ |
570 |
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$ |
217 |
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$ |
344 |
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$ |
494 |
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$ |
1,625 |
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$ |
112,730 |
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$ |
114,355 |
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Securitized Manufactured Housing Loan Portfolio II
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$ |
1,070 |
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$ |
467 |
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$ |
1,544 |
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$ |
478 |
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$ |
3,559 |
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$ |
143,306 |
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$ |
146,865 |
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Residential Loans
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$ |
990 |
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$ |
1,335 |
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$ |
5,420 |
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$ |
233 |
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$ |
7,978 |
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$ |
46,480 |
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$ |
54,458 |
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Newcastle’s 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.
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(F)
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Represents a portfolio of reverse mortgage loans acquired in February 2013. 80% of these loans have reached a termination event. As a result, the borrower can no longer make draws on these loans. The weighted average coupon and floating rate loans percentages are as of December 31, 2012.
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The following is a summary of real estate related loans by maturities at March 31, 2013:
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Outstanding
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Number of
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Year of Maturity (1)
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Face Amount
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Carrying Value
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Loans
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Delinquent (2)
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$ |
12,000 |
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$ |
— |
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1 |
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Period from April 1, 2013 to December 31, 2013
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98,216 |
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43,571 |
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3 |
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2014
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629,726 |
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340,270 |
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12 |
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2015
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58,672 |
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55,793 |
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5 |
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2016
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177,404 |
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175,779 |
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4 |
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2017
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95,226 |
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86,851 |
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4 |
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2018
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— |
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— |
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— |
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Thereafter
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180,434 |
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149,261 |
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2 |
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Total
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$ |
1,251,678 |
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$ |
851,525 |
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31 |
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(1)
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Based on the final extended maturity date of each loan investment as of March 31, 2013.
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(2)
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Includes loans that are non-performing, in foreclosure, or under bankruptcy.
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Activities relating to the carrying value of our real estate loans and residential mortgage loans are as follows:
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Held-for-Sale
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Held-for-Investment
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Real Estate Related
Loans
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Residential Mortgage
Loans
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Residential Mortgage
Loans
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Reverse
Mortgage Loans
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Balance at December 31, 2012
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$ |
843,132 |
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$ |
2,471 |
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$ |
292,461 |
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$ |
— |
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Purchases / additional fundings
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66,175 |
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— |
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— |
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35,138 |
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Interest accrued to principal balance
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6,181 |
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— |
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— |
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— |
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Principal paydowns
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(63,511 |
) |
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(148 |
) |
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(10,769 |
) |
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— |
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Valuation (allowance) reversal on loans
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(1,441 |
) |
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6 |
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(799 |
) |
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— |
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Accretion of loan discount and other amortization
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— |
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— |
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|
|
961 |
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|
346 |
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Other
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|
989 |
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51 |
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|
370 |
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— |
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Balance at March 31, 2013
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$ |
851,525 |
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|
2,380 |
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$ |
282,224 |
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$ |
35,484 |
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The following is a rollforward of the related loss allowance.
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Held-For-Sale
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Held-For-Investment
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Real Estate
Related Loans
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Residential Mortgage
Loans
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Residential Mortgage
Loans (A)
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Balance at December 31, 2012
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$ |
(182,062 |
) |
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$ |
(1,072 |
) |
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$ |
(22,478 |
) |
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Charge-offs
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|
— |
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|
47 |
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|
1,621 |
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Valuation (allowance) reversal on loans
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|
(1,441 |
) |
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|
6 |
|
|
|
(799 |
) |
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Balance at March 31, 2013
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|
$ |
(183,503 |
) |
|
$ |
(1,019 |
) |
|
$ |
(21,656 |
) |
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(A)
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The allowance for credit losses was determined based on the guidance for loans acquired with deteriorated credit quality.
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Securitization of Subprime Mortgage Loans
The following table presents information on the retained interests in Newcastle’s securitizations of subprime mortgage loans at March 31, 2013:
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Subprime Portfolio
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I |
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II
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Total
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Total securitized loans (unpaid principal balance) (A)
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$ |
412,344 |
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$ |
548,890 |
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$ |
961,234 |
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Loans subject to call option (carrying value)
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$ |
299,176 |
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$ |
106,939 |
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$ |
406,115 |
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Retained interests (fair value) (B)
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$ |
1,437 |
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$ |
— |
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$ |
1,437 |
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(A)
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Average loan seasoning of 92 months and 74 months for Subprime Portfolios I and II, respectively, at March 31, 2013.
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(B)
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The retained interests include retained bonds of the securitizations. The fair value of which is estimated based on pricing models. Newcastle’s residual interests were written off in 2010. The weighted average yield of the retained bonds was 8.35% as of March 31, 2013.
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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 March 31, 2013:
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Subprime Portfolio
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I |
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II
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Loan unpaid principal balance (UPB)
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$ |
412,344 |
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$ |
548,890 |
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Weighted average coupon rate of loans
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|
5.69 |
% |
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5.11 |
% |
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Delinquencies of 60 or more days (UPB) (A)
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$ |
116,551 |
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$ |
204,643 |
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Net credit losses for the three months ended March 31, 2013
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$ |
5,947 |
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$ |
10,021 |
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Cumulative net credit losses
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$ |
226,364 |
|
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$ |
266,740 |
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Cumulative net credit losses as a % of original UPB
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|
15.1 |
% |
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24.5 |
% |
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Percentage of ARM loans (B)
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50.8 |
% |
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64.6 |
% |
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Percentage of loans with original loan-to-value ratio >90%
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10.6 |
% |
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17.0 |
% |
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Percentage of interest-only loans
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|
20.3 |
% |
|
|
4.1 |
% |
|
Face amount of debt (C)
|
|
$ |
407,585 |
|
|
$ |
548,890 |
|
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Weighted average funding cost of debt (D)
|
|
|
0.57 |
% |
|
|
1.09 |
% |
|
(A)
|
Delinquencies include loans 60 or more days past due, in foreclosure, under bankruptcy filing or real estate owned.
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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 million of retained notes for Subprime Portfolio I at March 31, 2013.
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(D)
|
Includes the effect of applicable hedges.
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Newcastle received negligible cash inflows from the retained interests of Subprime Portfolios I and II during the three months ended March 31, 2013 and 2012.
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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