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Newcastle Investments's CEO Discusses Q2 2012 Results - Earnings Call Transcript

For the quarter, we invested $283 million in cash to purchase excess MSRs non-agency RMBS. And then subsequent to quarter, we made our first investment in the senior housing sector.

So investment activity, $220 million of the $283 that we invested was in excess mortgage servicing rights. Four different pools predominately the pools that we had agreed to purchase earlier in the year from Aurora. Aurora was the servicing operation of the bankrupt Lehman Brothers estate we committed to back in February. We had anticipated originally that transaction closing in May. It ended up closing close to the end of June. That was the big chunk of the un-invested capital. We expect the rate of return on this portfolio to be mid-teens, specifically 17.5%. We expect total cash flows from the portfolio to be about two times what we paid for it, $445 million and average life over the next six years.

In addition to the mortgage servicing rights, we invested $64 million in non-agency RMBS. Greg Sukenik is the portfolio manager for the RMBS portfolios. So I will have him go through what we're up there in a second. But this is a scenario that we think has a lot of promise.

In May of the quarter, we committed to invest up to $450 million with an expected amount between $150 and $300 million to buy a 65% interest in the excess MSRs from the ResCap transaction. ResCap is the mortgage servicing operation. It's a subsidiary of Allied Bank. It filed for bankruptcy on May 13th. Nationstar was named the stocking horse bidder. I know there will be a lot of questions about that, so I'll hold any further comments on that. But the net of it is that after a little bit of back and forth, we ended being confirmed as the stocking horse for that transaction. That auction is scheduled to take place in October. I think right now October 19th is the date folks have to be certified as bidders. And October 23rd is the expected bid date. So there is a lot of activity going on behind the scenes in that between ourselves and Nationstar as well. But I'll talk about that a little bit later.

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