8. INVESTMENTS
IN RESIDENTIAL MORTGAGE LOANS
On February 27,
2013, New Residential, through a subsidiary, entered into an agreement to co-invest in reverse mortgage loans with a UPB of approximately
$83.1 million as of December 31, 2012. New Residential had invested approximately $35.1 million to acquire a 70% interest
in the residential mortgage loans. Nationstar co-invested pari passu with New Residential in 30% of the mortgage loans and is the
servicer of the loans, performing all servicing and advancing functions, and retaining the ancillary income, servicing obligations
and liabilities as the servicer.
The following is a
summary of residential mortgage loans as of December 31, 2013, all of which are classified as held for investment:
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December 31, 2013 |
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| Loan Type |
|
Outstanding
Face Amount
(A) |
|
|
Carrying
Value (A) |
|
|
Loan
Count |
|
|
Wtd.
Avg.
Yield |
|
|
Weighted
Average
Coupon
(B) |
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|
Weighted
Average
Life
(Years) (C) |
|
|
Floating
Rate Loans
as a % of
Face Amount |
|
|
Delinquent
Face Amount
(A)(D) |
|
| Residential Mortgage Loans Held-for-Investment (E) |
|
$ |
57,552 |
|
|
$ |
33,539 |
|
|
|
328 |
|
|
|
10.3 |
% |
|
|
5.1 |
% |
|
|
3.7 |
|
|
|
22.0 |
% |
|
$ |
48,696 |
|
| (A) |
Represents a 70% interest New Residential holds in the reverse mortgage loans, which had an aggregate United States federal income tax basis of $33.9 million. The average loan balance outstanding based on total UPB is $0.2 million. |
| (B) |
Represents the stated interest rate on the loans. Accrued interest on reverse mortgage loans is generally added to the principal balance and paid when the loan is resolved. |
| (C) |
The weighted average life is based on the expected timing of the receipt of cash flows. |
| (D) |
Includes loans that have either experienced (i) a termination event or (ii) an event of default, substantially all of which are more than 90 days past the time at which they were considered delinquent or real estate owned (“REO”). Collateral value underlying loans considered delinquent is generally sufficient, however $1.6 million face amount of REO loans, representing New Residential’s 70% interest therein, was on non-accrual status resulting from the uncertainty of cash collections as of December 31, 2013. |
| (E) |
82% of these loans have reached a termination event. As a result, the borrower can no longer make draws on these loans. Each loan matures upon the occurrence of a termination event. |
Activities related
to the carrying value of residential mortgage loans are as follows:
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Year Ended
December 31,
2013 |
|
| Balance as of December 31, 2012 |
|
$ |
— |
|
| Purchases/additional fundings |
|
|
35,138 |
|
| Proceeds from repayments |
|
|
(3,788 |
) |
| Accretion of loan discount and other amortization |
|
|
2,650 |
|
| Valuation allowance |
|
|
(461 |
) |
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| Balance as of December 31, 2013 |
|
$ |
33,539 |
|
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Residential Mortgage
Loans |
|
| Balance as of December 31, 2011 |
|
$ |
— |
|
| Charge-offs |
|
|
— |
|
| Valuation allowance on loans |
|
|
— |
|
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| Balance as of December 31, 2012 |
|
|
— |
|
| Charge-offs |
|
|
— |
|
| Valuation allowance on loans |
|
|
461 |
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| Balance as of December 31, 2013 |
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$ |
461 |
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The average carrying
amount of New Residential’s residential mortgage loans was approximately $33.8 million during the year ended December
31, 2013, on which New Residential earned approximately $2.7 million of interest income.
The table below summarizes
the geographic distribution of the underlying residential mortgage loans as of December 31, 2013:
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| State Concentration |
|
Percentage of
Total
Outstanding
Unpaid
Principal Amount |
|
| New York |
|
|
22.0 |
% |
| Florida |
|
|
21.2 |
% |
| Illinois |
|
|
7.7 |
% |
| New Jersey |
|
|
6.9 |
% |
| California |
|
|
5.7 |
% |
| Massachusetts |
|
|
4.1 |
% |
| Washington |
|
|
3.9 |
% |
| Connecticut |
|
|
3.9 |
% |
| Virginia |
|
|
3.3 |
% |
| Texas |
|
|
2.8 |
% |
| Other U.S. |
|
|
18.5 |
% |
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|
|
|
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|
|
100.0 |
% |
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On December 31,
2013, Nationstar financed the mortgage loans and related participation interests in a repurchase facility with Barclays Bank PLC,
an affiliate of Barclays Capital Inc., which resulted in New Residential’s receipt of approximately $22.8 million of financing
proceeds correlating to New Residential’s 70% interest in the mortgage loans. Refer to Notes 11 and 18 for discussions of
the financing associated with, and the recent activities related to, residential mortgage loans. |