Newcastle Investment Corp. spin-off New Residential Investment Corp. has invested $38 million to acquire certain cash-flow privileges from mortgage servicing rights recently acquired by Nationstar Mortgage LLC.
As co-investor New Residential will receive one-third of the monthly cash flow generated by these MSRs, based on “net of a basic fee paid to Nationstar,” the New York-based real estate investment trust reported in a company release.
The portfolio consists of a pool of residential, government-sponsored enterprise mortgage loans with an unpaid principal balance of approximately $23 billion.
Nationstar will continue to own the MSRs and act as the servicer of the loans.
Earlier in May, real estate finance REIT Newcastle Investment Corp split into two separate companies creating the New Residential Investment Corp.
According to media reports the new REIT will specialize in residential financing that delivers attractive dividends to investors as the new company builds a portfolio that is expected to take advantage of profit opportunities created during the ongoing housing recovery.
Given the over $310 billion unpaid principal loan balance underlying the deal, New Residential executives expect the transaction will bring the total initial investment in MSR cash flows to approximately $645 million.
As co-investor without ownership rights, New Residential “will not have any servicing duties, advance obligations or liabilities associated with the portfolio,” executives said.
In addition to New Residential, according to the REIT, another fund managed by Fortress Investment Group, the manager of Newcastle, has also acquired a one-third interest in the Nationstar MSR cash flows.
Under the terms of this investment, Nationstar has agreed to include in the portfolio any MSRs resulting from the refinancing of these loans, which in turn could “significantly reduce the impact of prepayments on New Residential’s investment,” the REIT said.