Newcastle Investment Corp. said it will be a partner in Nationstar’s plan to purchase $374 billion of servicing rights from Residential Capital Corp. by investing upwards of $300 million in the “excess” servicing strip on the deal.
The agreement calls for Newcastle to acquire up to a 65% interest in excess MSRs.
As reported Monday morning, Nationstar agreed to buy $374 billion of MSRs from ResCap as part of a bankruptcy reorganization/sale: $201 billion of primary MSRs and $173 billion of subservicing contracts. (The purchase also includes $1.8 billion of related servicing advance receivables.)
ResCap’s eventual sale could result in proceeds of almost $4 billion, but not all of the value reflects MSRs and related servicing assets.
Newcastle, a publicly traded REIT with ownership ties to Nationstar via Fortress Investments, offered a range on its contribution to the deal: $150 million to $300 million.
Excess servicing rights represent the monthly cash flow that remains after principal payments are upstreamed to the underlying MBS holder.
Roughly 65% of loans associated with the primary mortgage servicing rights (by unpaid principal balance) are owned, insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
“Under the terms of this proposed investment, to the extent that any loans in this portfolio are refinanced by Nationstar, the resulting primary mortgage servicing right will be included in the portfolio, subject to certain limitations,” said a statement issued by Newcastle. “This should serve to significantly reduce the impact of prepayments on Newcastle’s investment. Newcastle will not have any servicing duties, advance obligations or liabilities associated with the portfolio.”
Newcastle president Kenneth Riis said, “With this transaction, to date we have invested or committed to invest in excess mortgage servicing rights with an unpaid principal balance of approximately $275 billion. We are very excited about this investment opportunity and the potential to generate returns and growth for our stockholders.”