Newcastle Investment Corp. (NYSE: NCT) announced today that it has signed a definitive agreement to acquire up to a 65% interest in excess mortgage servicing rights (“Excess MSRs”) from Nationstar Mortgage LLC (“Nationstar”) in connection with Nationstar’s acquisition of certain residential mortgage servicing rights and other assets (collectively, the “Mortgage Servicing Assets”) from Residential Capital, LLC and related entities (collectively, “ResCap”) in connection with ResCap’s proposed sale of these assets pursuant to an auction supervised under the U.S. Bankruptcy Code (the “Transaction”).
Newcastle expects to invest between $150 million to $300 million to acquire an interest in Excess MSRs related to Nationstar’s proposed acquisition of primary mortgage servicing rights with an unpaid principal balance of approximately $201 billion as of February 29, 2012. (Newcastle has committed to invest up to $450 million to acquire a 65% interest in these Excess MSRs, but it has retained the flexibility to sell a portion of its commitment to certain Fortress affiliates.) Nationstar will be the servicer of the loans and will invest alongside Newcastle by retaining an approximately 35% interest in the Excess MSRs. Approximately 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.
As background to Newcastle’s proposed investment, ResCap and Nationstar have disclosed today that ResCap has voluntarily filed a Chapter 11 petition in U.S. Bankruptcy Court and is seeking court approval to sell its Mortgage Servicing Assets in an auction process supervised by the court. Nationstar has agreed to serve as the “stalking horse” bidder for the auction of the Mortgage Servicing Assets, and if Nationstar is the successful bidder in the auction, then Newcastle will acquire up to 65% of the related Excess MSRs. Newcastle currently expects the auction to be completed by mid-September 2012, and, if successful, closing to be completed by late 2012. The auction timing and process are subject to the court’s discretion and may change.