New Residential Corp., a spin off of Newcastle Investment Corp., told investors it plans to focus on nonagency residential mortgage-backed securitizations for growth opportunities in 2013.
New Residential stated that the nonagency RMBS market offers $1 trillion worth of investment potential.
As a result, the real estate investment trust plans to buy attractive Nationstar-serviced securities by improving portfolio performance and collapsing deals, according to its investor presentation.
On Jan. 8, Newcastle announced the establishment of New Residential, noting that it will be a publicly traded REIT primarily targeting investments including excess mortgage servicing rights and RMBS.
New Residential noted that Nationstar Mortgage Holdings (NSM), the parent company of Newcastle, would service 100% of the REIT’s nonagency RMBS portfolio.
Additionally, loans securing nonagency RMBS securities are often more valuable than the securities. Thus, New Residential stated that there is a 20-point discrepancy – based on differences between average price of securities and loans on recent purchase activity.
Furthermore, collapsing deals often unlocks the ‘trapped value’ of underlying loans, which typically requires servicer cooperation.
Click on the graph to view the nonagency RMBS market.
Going forward, New Residential also plans to bulk up its purchase of mortgage servicing rights to the tune of $300 billion in new acquisitions this year.
The separation of Newcastle and New Residential falls in line for Nationstar. Recently, FBR Capital Markets noted that that Nationstar will capitalize on the servicing market.
The company continues to improve the profitability of its servicing portfolio, including falling delinquencies and lower funding costs, FBR said.
"The special servicing market is poised to experience substantial growth over the next two years as many of the private-label litigation actions between investors and the big banks still need to be resolved, and special servicers will likely be able to capitalize on the new business," the FBR analysts stated.