New York-based Newcastle Investment Corp. has announced that it has made its first investment in excess mortgage servicing rights (MSRs). The company, which is managed by an affiliate of Fortress Investment Group LLC, invested $44 million to acquire a 65% interest in the excess MSRs of a $9.9 billion residential mortgage portfolio.
Nationstar Mortgage LLC, whose parent company is Fortress, will service the loans and invest alongside Newcastle by acquiring the remaining 35% interest of the excess MSRs. Nationstar currently services over $100 billion in loans and is an active originator of residential mortgage loans.
Under the terms of the investment, to the extent that Nationstar refinances any loans in this portfolio, the resulting MSR will be included in the portfolio, subject to certain limitations. Newcastle will not have any servicing duties, advance obligations or liabilities associated with the portfolio.
Newcastle CEO Kenneth Riis described the deal as a "watershed investment" for the company in the servicing sector. He estimates the investment will generate a roughly 20% unleveraged return. More such deals could be on the way, Riis hinted.
"Residential mortgage servicing is a large market, and we currently see a strong pipeline of similar investments at very attractive returns," he said.