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Newcastle Investment Corp.Excess MSR Investment in $9.9 Billion Mortgage Portfolio
December 2011
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DisclaimerIn General. Figures in this presentation are as of September 30th 2011, unless otherwise noted.
Forward-looking statements. This presentation contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of1995, including, but not limited to, statements regarding expected investment returns. Readers can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,”“estimates,” “anticipates” or the negative version of those words or other comparable words. These forward-looking statements are based upon management’scurrent plans, estimates and expectations, which are subject to risks and uncertainties beyond our control. If one or more risks or uncertainties materialize, or if ourunderlying assumptions about factors such as loan prepayment rates, delinquencies and recapture rates prove to be incorrect, our actual results may vary materiallyfrom those indicated in these statements. Therefore, the inclusion of such forward-looking statements should not be regarded as a representation by us or any otherfrom those indicated in these statements. Therefore, the inclusion of such forward looking statements should not be regarded as a representation by us or any otherperson that the future plans, estimates or expectations contemplated by us will be achieved. For a discussion of some of the risks and important factors that couldaffect such forward-looking statements, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results ofOperation” in the quarterly and annual reports available on Newcastle’s website (www.newcastleinv.com). In addition, new risks and uncertainties emerge from timeto time, and it is not possible to predict or assess the impact of every factor that may cause actual results to differ from those contained in any forward-lookingstatements. Accordingly, you should not place undue reliance on any forward-looking statements.
No offer to purchase or sell securities. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any security and may not be reliedp p , y, y y yupon in connection with the purchase or sale of any security. Any such offer would only be made by means of formal offering documents, the terms of which wouldgovern in all respects. You are cautioned against using this information as the basis for making a decision to purchase any security.
No reliance. You should not rely on this presentation as the basis upon which to make any investment decision. To the extent that you rely on this presentation inconnection with any investment decision, you do so at your own risk. The presentation does not purport to be complete on any topic addressed. Certain informationcontained in this presentation includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use ofdifferent methods for preparing, calculating or presenting information may lead to different results, and such differences may be material.
No updates. The information in this presentation is provided to you as of the dates indicated, and Newcastle expressly disclaims any obligation to update theinformation herein, even in the event that it becomes materially inaccurate.
Past performance. In all cases where historical performance is presented, please note that past performance is not a reliable indicator of future results and shouldnot be relied upon as the basis for making an investment decision.
No tax, legal, accounting or investment advice. This presentation is not intended to provide, and should not be relied upon for, tax, legal, accounting orinvestment advice. Any statements of federal tax consequences contained in this presentation were not intended to be used and should not be used to avoidpenalties under the Internal Revenue Code or to promote, market or recommend to another party any tax related matters addressed herein.
Distribution of this presentation. This presentation is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where suchdistribution or use is contrary to local law or regulation.
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Investment Summary
Newcastle invested $43.7 million to acquire a 65% interest in the Excess Mortgage Servicing Rights (“Excess MSRs”) of a $9.9 billion residential mortgage portfolio
In the Base Case we expect to generate approximately a 20% unleveraged IRR and over 2x our investment
If prepayments remain at current levels, returns could be materially higher
Excess MSRs are the interest payments generated by the Mortgage Servicing Rights (“MSRs”) on a portfolio of mortgage loans after payment of a base servicing fee
Nationstar will be the servicer of the loan portfolio and in addition to receiving a base servicing feeNationstar will be the servicer of the loan portfolio and, in addition to receiving a base servicing fee, will invest pari passu with Newcastle in 35% of the Excess MSRs
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What are Excess MSRs?Excess MSRs are the interest payments generated by the Mortgage Servicing Rights (“MSRs”) on a
Servicing Fee: Typical total MSR is ~30 bps of the unpaid principal balance (“UPB”) of which the cost to service the loan (“Base Servicing”) ranges between 5 – 7 bps
All MSRs are paid monthly (i e 2 5 bps per month)
p y g y g g g g ( )portfolio of mortgage loans after payment of a base servicing fee
All MSRs are paid monthly (i.e. 2.5 bps per month)
Base Servicing Functions:Mortgage loan administration – monthly payment collection, escrow fund management, foreclosure and property liquidation, advancing delinquent principal and interest
Hypothetical Mortgage Loan(1)
Principal Balance $100,000
Loan Term 30 yearsy
Annual Interest Rate 6%
Monthly Payment $600
Monthly MSR ($25)
Hypothetical MSR
MSR 30 bps $25Monthly MSR ($25)
Paid to Mortgage Owner $575
MSR 30 bps $25
Base Servicing (6 bps) ($5)
Excess MSR 24 bps $20
Fixed bps fee; covers operating cost to service
Excess over base fee
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(1) For illustrative purposes only. This illustration uses assumptions that affect the results shown, including assumptions that are based upon factors that are beyond Newcastle’s control. Actual results could differ materially from this illustration.
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Prepayment Impact – Hypothetical $10 Million PortfolioPrepayments mainly determine the return on an Excess MSR investmentLoans pay off in two ways:
1. Voluntary prepayments (borrower refinances loan or sells home and repays loan) (“CRR”)
2. Involuntary prepayments (borrower defaults and home is in foreclosure and sold) (“CDR”)
Voluntary prepayments increase when interest rates decrease or housing prices rise sharply
Voluntary Prepayments (“CRR”) + Involuntary Prepayments (“CDR”) = Constant Prepayment Rate (“CPR”)
CPR (“Prepayment”) Impact on Excess MSR$10 Million Portfolio of LoansBalance ($) 10,000,000 Purchase Price ($) 60,000
CPR 0% 10% 20% 30% 40%
Cash Flows $405,434 $163,995 $91,276 $59,970 $43,049
Purchase Price (bps of UPB) 60 # of Loans 100 Avg Loan Balance ($) 100,000 Delinquency Rate 10%Rate (fixed) 6.0%Remaining Term (yrs) 30 MSR (b ) 30
IRR 40.4% 26.7% 13.3% 0.0% ‐13.4%MSR (bps) 30 Base Servicing (bps) 6 Excess MSR (bps) 24
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Recapture Impact – Hypothetical $10 Million Portfolio(1)
Re‐originating and retaining loans in the portfolio that refinance (“Recapture”) can significantly reduce
CPR(2) 0% 10% 20% 30% 40%
the impact of prepayments
0% Recapture
Cash Flows $405,434 $163,995 $91,276 $59,970 $43,049
IRR 40.4% 26.7% 13.3% 0.0% ‐13.4%
CPR(2) 0% 10% 20% 30% 40%
Cash Flows $405,434 $186,918 $118,850 $82,764 $61,287
35% Recapture
Original investment f $60 000
IRR 40.4% 28.9% 19.9% 10.5% 0.8%
50% Recapture
of $60,000
CPR(2) 0% 10% 20% 30% 40%
Cash Flows $405,434 $198,642 $136,311 $98,781 $74,833
IRR 40.4% 29.9% 22.8% 15.4% 7.5%
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(1) Uses the same $10 million portfolio of loans and assumptions as described on the previous page. (2) Assumes a 5% CDR across all CPR scenarios. The Recaptured Loans use the same CPR as the original portfolio, but assume: 4.5% Fixed rate coupon, 25yr amortization, 24bps excess MSR.
Investment OverviewNationstar and Newcastle purchased the MSRs on $9.9 billion UPB of mortgage loans (“GSE Portfolio”)For $43.7 million, Newcastle acquired a 65% interest in the Excess MSR of the GSE Portfolio
Nationstar will be the servicer of the loan portfolio and will invest alongside Newcastle, purchasing a 35% interest in the Excess MSR
Newcastle will not have any servicing duties advance obligations or liabilities associated with the portfolioNewcastle will not have any servicing duties, advance obligations or liabilities associated with the portfolio
Newcastle received a private letter ruling from the IRS that allows for treatment of an Excess MSR as a good REIT asset and the income it generates as qualified REIT income
1 month CPR – 9.7%; 3 month CPR – 7.3%
GSE PortfolioUnpaid Principal Balance $9.9 billion MSR
MSR 35 bps
Loan Interest Rate 6.10%
Remaining Loan Term 24.3 yrsPaid to Nationstar (Loan Servicer)
MSR 35 bps
Base Servicing (6 bps)
Excess MSR 29 bpsp
65%Newcastle
35%Nationstar
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Investment – Prepayment Impact As prepayments increase, cash flows and returns decreaseAssuming a 0% recapture and a weighted average CPR of 20%, the return is 13.3%
CPR (“Prepayment”) Impact on Excess MSR(0% Recapture)
(Cash Flows: $mm)$9 9 Billion Portfolio of Loans
CPR(1) 0% 10% 20%(2) 30% 40%
Cash Flows $246.5 $116.2 $68.3 $45.7 $33.1
$9.9 Billion Portfolio of LoansBalance ($mm) 9,942 Purchase Price ($mm) 43.7 Purchase Price (bps of UPB) 67.7 # of Loans 63,847Avg Loan Balance ($) 155,716
IRR 42.8% 28.9% 13.3% 1.7% ‐11.9%
Investment Multiple 5.6x 2.7x 1.6x 1.0x 0.8x
Delinquency Rate 9.6%Weighted Average Coupon 6.1%Remaining Term (yrs) 24.3 MSR (bps) 35 Base Servicing (bps) 6 Excess MSR (bps) 29 p
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(1) Assumes a 5% CDR and 10% Delinquency Rate across all CPR scenarios. (2) Represents weighted average lifetime CPR of 20% by using a CPR Vector. Vector assumes: Month 1 – 3: 10%; Months 4 – 25: 30%; Months 25+: 15%.
Investment – Recapture Impact Expected Base Case return: 20% unleveraged IRR, $92 million of cash flow and
Loans from this portfolio refinanced by Nationstar will remain within the portfolio post refinance(1)
0% Recapture(Cash Flows: $mm)
p g , $a 2.1x investment multiple – assumes a 20% weighted average CPR and 35% recapture rate
CPR(2) 0% 10% 20%(3) 30% 40%
Cash Flows $246.5 $116.2 $68.3 $45.7 $33.1 IRR 42.8% 28.9% 13.3% 1.7% ‐11.9%
CPR(2) 0% 10% 20%(3) 30% 40%
Cash Flows $246.5 $128.9 $91.6 $73.8 $63.4
35% Recapture (Base Case)
Original investment
IRR 42.8% 30.6% 20.0% 14.4% 9.3%
Investment Multiple 5.6x 2.9x 2.1x 1.7x 1.5x
50% Recapture
of $43.7 million
CPR(2) 0% 10% 20%(3) 30% 40%
Cash Flows $246.5 $135.0 $102.8 $87.4 $78.1
IRR 42.8% 31.4% 22.6% 18.3% 14.1%
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(1) Subject to certain limitations based on pre-agreed incentive between Newcastle and Nationstar. (2) All CPR scenarios assume a 5% CDR and 10% Delinquency Rate. Recaptured loans assume: 8% CPR (3% CRR, 5% CDR), 10% Delinquency Rate, 4.5% fixed rate coupon, 25 Yr amortization term, 21bps Excess MSR.(3) Assumes weighted average lifetime CPR of 20% by applying the following Vector: Months 1 – 3: 10%; Months 4 – 25: 30%; Months 25+: 15%.
Appendixpp
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Collateral Overview and Key AssumptionsCredit characteristics of this portfolio should support lower
Collateral Summary Balance ($mm) 9,942 LTV (Orig / Upd(1)) 78.3 / 102.8Loan Count 63,847 FICO (Orig / Upd) 705 / 687Avg Loan Amt 155,716 Full Documentation % 51.8WAC (%) 6.10 Delinquency 30+ days 9.6%MSR (bps) 35 % Delinquent 30+ days, but making some payment 46%
lifetime CPRs
48% have current FICO < 700
47% have current LTV > 100.0%
52% of loans were originated with full documentation
R d h d f 7 10% CPR MSR (bps) 35 % Delinquent 30+ days, but making some payment 46%Remaining Term (yrs) 24.3ARM % 18.6 1 mth / 3 mth CPR 9.7% / 7.3%
Recent prepayment speeds have ranged from 7 – 10% CPR
Base Case assumptions:
Annual Prepayment Rate (CPR) – original portfolio assumes 20% lifetime weighted average CPR versus current rate of 7 – 10%
30%
35%
Recaptured loans assume a static 8% CPR
Delinquencies (DQ) – assumes 10% of the loans in the portfolio are not making any mortgage payments versus 5% actual
Recapture Rate – assumes 35%
HARP 2.0 Spike
Original Portfolio Base Case CPR Vector(2)
(CPR)
10%
15%
20%
25%Base Case CPR includes a prepayment spike 3x above the current CPR to account for HARP 2.0 (Home Affordable Refinance Program)
HARP 2.0 is a recently announced Federal Housing Finance Agency sponsored program which creates the opportunity for
Weighted Average 20%
0%
5%
10%
0 1 2 3 4 5 6
Agency sponsored program which creates the opportunity for credit stressed borrowers (i.e. high LTVs) to refinance
The prepayment effects of HARP 2.0 are expected to last from Feb 2012 through Dec 2013(3)
Prepayment speeds on loans which refinance under the program should prepay significantly slower post refinance (Years)
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should prepay significantly slower post refinance
(1) Updated LTV is determined using FHFA’s House Price Index. (2) Base Case CPR on the original $9.9 billion portfolio assumes 5% CDR and weighted average lifetime CPR of 20% by applying the following Vector: Months 1 – 3: 10%; Months 4 – 25: 30%; Months 25+: 15%. (3) Changes to the program were originally announced in October 2011 and expire in December 2013.
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( )
Collateral Summary$9.9 billion UPB, average loan size of $155,716
Documentation Loan Balance % of WAC Orig Rem Loan to Value CurType Count ($mm) Balance (%) Term Term Orig Cur FICOFull Doc. 33,073 5,150 51.8 6.2 357 299 84.8 118.3 669Alternative 7,406 1,153 11.6 6.2 355 296 85.7 118.8 662Limited 23,304 3,629 36.5 5.9 337 280 75.6 99.1 720
81% Fixed (WAC of 6.3%); 19% ARM (WAC of 5.3%)Mortgage Loan Balance % of WAC Orig Rem Loan to Value Cur Rate (%) Count ($mm) Balance (%) Term Term Orig Cur FICO<= 4.500 2,704 497 5.0 3.2 357 285 77.0 100.5 706> 4.500, <= 5.000 1,913 280 2.8 4.9 324 265 74.0 81.8 723> 5.000, <= 5.500 6,482 1,066 10.7 5.4 339 276 74.4 91.1 710
Current Loan Balance % of WAC Orig Rem Loan to Value Cur
i i e , ,Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Loan Balance % of WAC Orig Rem Loan to Value CurCount ($mm) Balance (%) Term Term Orig Cur FICO
Current 57,743 8,992 90.4 6.1 349 291 81.5 111.3 69730 Days 3,703 577 5.8 6.4 353 292 82.3 109.9 58760 Days 1 532 239 2 4 6 3 352 296 81 6 114 2 573
Delinquency
, , ,> 5.500, <= 6.000 14,150 2,399 24.1 5.8 345 287 75.4 100.6 700> 6.000, <= 6.500 17,873 2,989 30.1 6.3 352 297 78.6 108.6 689> 6.500, <= 7.000 12,958 1,843 18.5 6.8 355 300 82.8 108.5 669> 7.000, <= 7.500 4,907 585 5.9 7.3 358 302 84.7 102.8 646> 7.500 2,860 283 2.9 8.0 356 294 80.7 91.3 613Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Current Loan Balance % of WAC Orig Rem Loan to Value CurFICO Count ($mm) Balance (%) Term Term Orig Cur FICO< 600 13,092 1,892 19.0 6.3 351 294 78.9 99.8 535600 ‐ 649 6,911 1,029 10.4 6.3 352 295 79.9 102.6 628650 ‐ 699 11,727 1,872 18.8 6.2 352 296 80.2 106.5 678700 ‐ 749 13,149 2,207 22.2 6.0 351 294 79.3 106.8 725750 ‐ 799 14,319 2,286 23.0 5.9 346 287 76.4 101.4 775>= 800 4,649 656 6.6 5.8 339 277 72.6 92.7 810
60 Days 1,532 239 2.4 6.3 352 296 81.6 114.2 57390+ Days 894 139 1.4 6.4 353 301 82.6 119.6 594Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Loan Balance % of WAC Orig Rem Loan to Value CurCount ($mm) Balance (%) Term Term Orig Cur FICO
CA 8,188 1,910 19.2 5.9 353 296 71.6 126.5 698
GeographyLoan Balance % of WAC Orig Rem Loan to Value CurCount ($mm) Balance (%) Term Term Orig Cur FICO
CA 8,188 1,910 19.2 5.9 353 296 71.6 126.5 698
Geography
> 800 4,649 656 6.6 5.8 339 277 72.6 92.7 810Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Loan Balance % of WAC Orig Rem Loan to Value CurCount ($mm) Balance (%) Term Term Orig Cur FICO
Fixed 55,585 8,092 81.4 6.3 347 289 79.1 100.5 683ARM 8,262 1,851 18.6 5.3 360 303 75.2 112.8 705Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Coupon Type
FL 6,988 1,089 11.0 6.2 352 296 76.4 129.3 688TX 6,331 674 6.8 6.3 342 279 86.2 72.6 677AZ 2,740 468 4.7 6.1 355 298 77.3 135.2 700VA 1,763 345 3.5 6.0 353 296 78.6 90.7 686Remaining 37,837 5,457 54.9 6.2 348 290 80.2 90.9 683Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
FL 6,988 1,089 11.0 6.2 352 296 76.4 129.3 688TX 6,331 674 6.8 6.3 342 279 86.2 72.6 677AZ 2,740 468 4.7 6.1 355 298 77.3 135.2 700VA 1,763 345 3.5 6.0 353 296 78.6 90.7 686Remaining 37,837 5,457 54.9 6.2 348 290 80.2 90.9 683Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Original Loan Balance % of WAC Orig Rem Loan to Value Cur LTV (%) Count ($mm) Balance (%) Term Term Orig Cur FICO<= 75.00 20,473 3,115 31.3 6.0 339 281 62.2 89.0 68975.01 ‐ 80.00 22,175 3,945 39.7 6.0 353 295 79.5 109.0 69580.01 ‐ 85.00 1,835 272 2.7 6.2 350 295 83.8 105.4 66685.01 ‐ 90.00 5,274 789 7.9 6.3 352 297 89.2 109.7 67390.01 ‐ 95.00 4,142 598 6.0 6.4 357 301 94.4 114.3 67295 01 100 00 9 839 1 202 12 1 6 4 360 298 99 3 107 2 679
Current Loan Balance % of WAC Orig Rem Loan to Value CurLTV (%) (1) Count ($mm) Balance (%) Term Term Orig Cur FICO<= 75.00 19,369 2,067 20.8 5.9 320 250 67.5 56.1 70075.01 ‐ 80.00 3,887 559 5.6 6.1 351 293 76.7 77.6 67680.01 ‐ 85.00 4,312 650 6.5 6.1 353 297 78.1 82.6 67685.01 ‐ 90.00 4,366 685 6.9 6.2 355 300 80.6 87.5 67690.01 ‐ 95.00 4,326 689 6.9 6.2 357 303 82.1 92.5 67095 01 100 00 3 849 645 6 5 6 2 358 304 82 8 97 5 676
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95.01 ‐ 100.00 9,839 1,202 12.1 6.4 360 298 99.3 107.2 679> 100.00 109 22 0.2 5.6 357 327 117.4 109.0 629Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687(1) Current LTV is determined using FHFA’s House Price Index
95.01 ‐ 100.00 3,849 645 6.5 6.2 358 304 82.8 97.5 676> 100.00 23,738 4,648 46.8 6.2 359 305 81.9 134.0 690Total: 63,847 9,942 100.0 6.1 349 292 78.3 102.8 687
Newcastle Investment Corp.1345 Avenue of the Americas
New York, NY 10105
Investor Relations: 1‐212‐479‐3195
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