New Residential Investment Corp., fresh off a substantial first-quarter reduction of its asset holdings, is now planning to securitize the receivables on its $200 billion servicing portfolio of Fannie Mae-owned mortgages.
New Residential has launched NRZ MSR-Collateralized Notes, Series 2020-FNT1 with an initial $265 million issuance of Class A notes. The notes will be paid and secured from the Fannie Mae mortgage servicing rights that New Residential owns in a servicing agreement with the GSE.
The advance rate on the notes will be 67.24% when the deal closes.
The MSRs include net servicing fees of the company’s servicing affiliate, NewRez, as well as the float from the investments net of interest due.
Kroll Bond Rating Agency has assigned the note series a preliminary BBB- rating, a grade largely dependent on New Residential’s own corporate issuer ratings since it is serving as guarantor. (New Residential carries non-investment grade issuer ratings of BB+ from Kroll and B3 by Moody’s Investors Service.)
The triple-B rating also reflects the “volatile” asset history of MSRs, for which valuations are sensitive to interest-rate changes and subject to unpredictable default, prepayment and refinancing rates within a pool of loans, according to Kroll. “MSR valuation is complex and can be particularly sensitive to periods of illiquidity for secondary market trading of MSRs,” Kroll’s report stated.
New Residential’s MSR portfolio, and other holdings of the company, went through further turmoil during the substantial economic stress of the coronavirus outbreak that brought about fallen asset values and steep losses in the first quarter. The company, structured as a real estate investment trust, incurred a $1.6 billion loss including $440 million on MSRs and servicer advances alone, about $941 million on its residential securities and call rights portfolio, and $196.7 million on its residential loan portfolio.
New Residential sold off $27.9 billion in debt, and reduced its investment portfolio by 61%.
The company has since nearly doubled its capital by raising $600 million through a loan agreement with Canyon Partners and Fortress Investment Group (a New Residential investor).
Although the deal represents the first MSR rights transaction under the new securitization shelf, New Residential has completed securitizations of other assets including 23 non-qualified and reperforming mortgage pools since 2014, as well as 15 securitizations of servicer advance receivables totaling $6.1 billion, according to the REIT.
While the company also originates loans, it has exited the nonagency and non-QM channels to focus on Fannie Mae, Freddie Mac and Ginnie Mae loans.
