Business Context and Reporting Period
This Form 8-K was filed by New Residential Investment Corp. (the "Company") on August 8, 2016. The report details a strategic expansion of the Company's mortgage servicing rights (MSRs) portfolio through agreements with Ditech Financial LLC ("Ditech") and its parent, Walter Investment Management Corp. ("Walter").
Key Financial Metrics and Transaction Details
- Existing MSRs Purchase: The Company agreed to purchase MSRs and related servicing advances for approximately 272,000 existing residential mortgage loans with a total unpaid principal balance (UPB) of approximately $33 billion.
- Purchase Price: The aggregate cash purchase price for the Existing MSRs is approximately $215 million, subject to adjustments.
- Flow MSRs: The agreement includes a flow component for ongoing daily pricing and purchase of MSRs from new loans originated by Ditech.
- WCO Transaction: The Company has agreed in principle to purchase substantially all assets of Walter Capital Opportunity, LP ("WCO"), representing approximately $35 billion UPB of MSRs for a purchase price of approximately $264 million.
- Guaranty: Walter provided a payment and performance guaranty for Ditech's obligations under the Purchase Agreement.
Material Changes and Operational Structure
The filing represents a material change in the Company's asset base and operational scale. Key structural elements include:
- Subservicing Arrangement: Ditech will act as the subservicer for the acquired MSRs, performing daily servicing obligations such as payment collection and refinancing offers at fixed prices.
- Term: The Purchase Agreement has an initial term of three years with annual one-year renewals. The Subservicing Agreement has an initial term of one year with annual renewals.
- Flexibility: The Company retains the right to decline pricing for Flow MSRs on any day and may terminate the Flow MSR portion of the agreement with 30 days' notice.
Guidance, Risks, and Contingencies
- Regulatory Approvals: The purchase of Existing MSRs and Flow MSRs is subject to approval by the applicable Agencies (Fannie Mae, Freddie Mac, Ginnie Mae).
- Transaction Certainty: The WCO transaction is subject to the negotiation and execution of definitive documentation. The filing explicitly states there can be no assurance that definitive documentation will be entered into on the described terms or at all.
- Conditions Precedent: Both transactions are subject to customary conditions, including regulatory and government-sponsored enterprise approvals.
Investor Verification Checklist
- Verify the final execution of definitive documentation for the WCO transaction, as it is currently only an agreement in principle.
- Confirm receipt of necessary approvals from Fannie Mae, Freddie Mac, and Ginnie Mae for the transfer of MSRs.
- Review the specific adjustments to the $215 million purchase price for Existing MSRs as defined in the Purchase Agreement.
- Monitor the fixed pricing terms in the Subservicing Agreement to assess long-term margin impacts.
- Assess the impact of the combined $68 billion UPB ($33 billion Existing + $35 billion WCO) on the Company's capital requirements and liquidity.