Servicing

Nationstar Mortgage to sell $3.2B in servicing advances

Move allows mega servicer to generate long-term, fee-based revenue

New Residential Investment Corp. (NRZ) and several other co-investors signed a deal with servicer Nationstar Mortgage (NSM) to acquire $3.2 billion of servicing advances — namely non-agency residential mortgages with an unpaid principal balance of $58 million.

New Residential and investors will be assuming two servicing advance debt facilities and agreed to make future advances on the underlying loans.

New Residential claims the investment will generate a 14% return for the buyers with even more potential for upside. The investors and New Residential will benefit from the servicing cash flows from the $58 million in loans. Nationstar will service the loans in exchange for servicing fees and has the ability to continue to earn performance compensation. The mega servicer will retain all ancillary originations income tied to the loans.

The deal comes with an option for the buyer to acquire Nationstar’s remaining non-agency advances on substantially the same terms. Nationstar has $3.1 billion in remaining servicing advances tied to $72 billion in non-agency loans.

For Nationstar, the move is designed to be the first in a series of deals tied to the firm’s goal of creating a “low-cost, capital-light acquisition structure.” Through these deals, Nationstar says it's able to unlock $362 million in advance equity with the potential of up to $681 million.

In a press release, the servicer said the deal benefits its balance sheet.

“In addition to reducing Nationstar's advance funding interest expense, Nationstar has also transferred the obligation to fund the future servicing advances of the portfolios to NRZ, improving Nationstar's balance sheet efficiency,” the company said.

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