Accredited’s Loss May Be Gain for Fortress, Nationstar

Newcastle Investment Corp. (NYSE:NCT) said Friday that it will purchase a $1.7 billion portfolio of approximately 7,300 subprime residential mortgage loans, a portfolio sources have told HW was sold by troubled subprime lender Accredited Home Lenders Holding Company (NASDAQ:LEND).

Accredited announced that it had sold $2.7 billion of its loans on March 16, saying the sale — which was completed at a significant discount — would generate additional liquidity to allow it to continue to operate. It did not indicate at that time who had purchased the loans, nor the discount associated with the sale.

Newcastle is a REIT affiliated with Fortress Investment Group LLC, an investment firm that also owns subprime lender Nationstar Mortgage. Fortress purchased the subprime mortgage banking operations of homebuilder Centex in March 2006 in a deal worth approximately $575 million, which it then renamed Nationstar Mortgage.

Neither company would comment on the record regarding the connection between the two companies in terms of the transaction.

“We are very excited about this transaction,” said Kenneth Riis, Newcastle’s CEO and president. “Constrained liquidity and the re-pricing of credit risk in the subprime mortgage market have created a unique opportunity for us to purchase a portfolio of loans at an attractive price with early payment default protection.”

The loans are secured by residential subprime loans, with approximately 28 percent of the assets located in California, 13 percent in Florida, 10 percent in New York and the remaining balance diversified throughout 45 states.

Approximately 94 percent of the portfolio is secured by first liens and 92 percent of the assets are owner occupied. The weighted average coupon is 8.02 percent, Newcastle said, and 74 percent of the mortgage loans are adjustable rate. The majority of the adjustable rate mortgage loans are fixed for a period of 2 to 3 years and then adjust over LIBOR subject to periodic and lifetime interest rate caps. The current weighted average FICO score of the borrowers is 644.

The loans will be serviced by Nationstar Mortgage LLC, Newcastle said.

The acquisition will initially be financed under a repurchase agreement. Newcastle said expects to securitize the portfolio in the months ahead, suggesting that it expects the current subprime credit crunch to be short-lived.