NEW YORK ( TheStreet) -- Nationstar Mortgage Holdings ( NSM) shares, which rose Wednesday following a transaction with a related company, New Residential Investment Corp ( NRZ), erased its gains Thursday after an analyst downgrade. New Residential, meanwhile -- a lesser-known name with no employees that analysts mostly ignored -- clung to its gains.
While Nationstar shares traded higher on Wednesday, rising 4.7% to $42.73 in the first few hours following the deal's announcement, they fell 3.83% Thursday to close at $39.70. Shares of New Residential, meanwhile, have risen 5.2% in the two trading days since the deal was announced. New Residential shares closed at $6.45 Thursday.
In the deal announced Wednesday, New Residential and related parties acquired from Nationstar a part of servicing fee income on up to $130 billion worth of unpaid mortgage debt. Servicing essentially refers to collecting the debt. In return for acquiring the rights to the fees, known as mortgage servicing rights (MSRs), New Residential would have to finance up to $6.3 billion of advances against potential non-payment of the mortgage debt. Fortress Investment Group (FIG) owns 75% of Nationstar and an affiliate of Fortress is an external manager of New Residential. New Residential has no employees, serving largely as a corporate shell that pays out a large dividend from the fee income it essentially buys from Nationstar. By holding capital against potential non-payment of mortgages, it frees up Nationstar for other activities such as acquisitions or paying down debt.
Wednesday's deal "enables Nationstar to pay down debt and potentially purchase more mortgage servicing rights," according to a report from Compass Point Research analyst Kevin Barker.