10-K 1 nct-10k_123112.htm ANNUAL REPORT nct-10k_123112.htm


DRAFT       
2/23/2013 8:51 AM

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended                 December 31, 2012

or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________________ to _____________________________
 
Commission File Number:  001-31458
 
Newcastle Investment Corp.

(Exact name of registrant as specified in its charter)
 
Maryland
 
81-0559116
 (State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)
     
 
1345 Avenue of the Americas, New York, NY
 
10105
 
(Address of principal executive offices) 
 
(Zip Code)  
 
 
Registrant’s telephone number, including area code:  (212) 798-6100

Securities registered pursuant to Section 12 (b) of the Act:
 
Title of each class:   Name of exchange on which registered:
Common Stock, $0.01 par value per share   New York Stock Exchange (NYSE)
9.75% Series B Cumulative Redeemable Preferred    
    Stock, $0.01 par value per share   New York Stock Exchange (NYSE)
8.05% Series C Cumulative Redeemable Preferred    
    Stock, $0.01 par value per share   New York Stock Exchange (NYSE)
8.375% Series D Cumulative Redeemable Preferred    
    Stock, $0.01 par value per share   New York Stock Exchange (NYSE)

Securities registered pursuant to Section 12 (g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
x Yes  o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes  x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes  o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes  o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer  x     Accelerated Filer  o     Non-accelerated Filer  o     Smaller Reporting Company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check One):

o Yes  x  No

The aggregate market value of the common stock held by non-affiliates as of June 30, 2012 (computed based on the closing price on such date as reported on the NYSE) was:  $949 million.
 
The number of shares outstanding of the registrant’s common stock was 253,025,645 as of February 27, 2013.
 
 
 


 
 
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, and our financing needs.  Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions.  Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information.  Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain.  Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.  These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results.  Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

·    
reductions in cash flows received from our investments;
·    
our ability to take advantage of opportunities in additional asset classes or types of assets, including, without limitation, senior living facilities, at attractive risk-adjusted prices or at all;
·    
our ability to take advantage of investment opportunities in interests in excess mortgage servicing rights (“Excess MSRs”);
·    
our ability to deploy capital accretively;
·    
the risks that default and recovery rates on our real estate securities and loan portfolios deteriorate compared to our underwriting estimates;
·    
changes in prepayment rates on the loans underlying certain of our assets, including, but not limited to, our Excess MSRs;
·    
the risk that projected recapture rates on the portfolios underlying our Excess MSRs are not achieved, or that other assumptions underlying our projected returns prove to be incorrect;
·    
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
·    
the relative spreads between the yield on the assets we invest in and the cost of financing;
·    
changes in economic conditions generally and the real estate and debt securities markets specifically;
·    
adverse changes in the financing markets we access affecting our ability to finance our investments, or in a manner that maintains our historic net spreads;
·    
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or entering into new financings with us;
·    
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
·    
the quality and size of the investment pipeline and the rate at which we can invest our cash, including cash inside our collateralized debt obligations (“CDOs”);
·    
impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities, loans or real estate are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;
·    
legislative/regulatory changes, including but not limited to, any modification of the terms of loans;
·    
the availability and cost of capital for future investments;
·    
competition within the finance and real estate industries; and
·    
other risks detailed from time to time below, particularly under the heading “Risk Factors,” and in our other reports filed with or furnished to the Securities and Exchange Commission (the “SEC”).
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this report.  We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

 
 

 

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
·    
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements provide to be inaccurate;
 
·    
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
 
·    
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
 
·    
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
 
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the Company may be found elsewhere in this Annual Report on Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.  See “Business – Corporate Governance and Internet Address; Where Readers Can Find Additional Information.”

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 
 
 

 
 
NEWCASTLE INVESTMENT CORP.
FORM 10-K
 
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Overview

Newcastle Investment Corp. (“Newcastle”) is a real estate investment and finance company. We invest in, and actively manage, a portfolio of real estate securities, loans, excess mortgage servicing rights (“Excess MSRs”), real estate related assets, such as senior living facilities, and other assets. Our objective is to maximize the difference between the yield on our investments and the cost of financing these investments. We often seek to hedge our interest rate risk. We emphasize portfolio management, asset quality, liquidity, diversification, match funded financing and credit risk management.

We conduct our business through the following segments: (i) investments financed with non-recourse collateralized debt obligations (“non-recourse CDOs”), (ii) unlevered investments in deconsolidated Newcastle CDO debt (“unlevered CDOs”), (iii) unlevered Excess MSRs, (iv) investments in senior living assets financed with non-recourse debt (“nonrecourse senior living”), (v) investments financed with other non-recourse debt (“non-recourse other”), (vi) investments and debt repurchases financed with recourse debt (“recourse”), (vii) other unlevered investments (“unlevered other”) and (viii) corporate. Further details regarding the revenues, net income (loss) and total assets of each of our segments for each of the last three fiscal years are presented in Note 3 to Part II, Item 8, “Financial Statements and Supplementary Data.”

The following table summarizes our segments at December 31, 2012:
 
   
Non-Recourse CDOs (A)
   
Unlevered CDOs (B)
   
Unlevered Excess MSRs
   
Non-Recourse
Senior Living
   
Non-Recourse Other (A)(C)
   
Recourse (D)
   
Unlevered Other (E)
   
Corporate
   
Inter-segment Elimination (F)
   
Total
 
GAAP
                                                           
Investments
  $ 1,411,731     $ 5,998     $ 245,036     $ 181,887     $ 755,421     $ 1,049,029     $ 107,189     $ -     $ (62,336 )   $ 3,693,955  
Cash and restricted cash
    2,064       -       -       9,720       -       -       -       222,178       -       233,962  
Derivative assets
    -       -       -       165       -       -       -       -       -       165  
Other assets
    7,422       7       33       4,946       113       2,740       1,924       202       (157 )     17,230  
Total assets
    1,421,217       6,005       245,069       196,718       755,534       1,051,769       109,113       222,380       (62,493 )     3,945,312  
                                                                                 
Debt
    (1,095,598 )     -       -       (120,525 )     (651,540 )     (925,191 )     -       (51,243 )     62,336       (2,781,761 )
Derivative liabilities
    (31,576 )     -       -       -       -       -       -       -       -       (31,576 )
Other liabilities
    (5,681 )     -       (406 )     (5,084 )     (2,684 )     (171 )     (77 )     (44,969 )     157       (58,915 )
Total liabilites
    (1,132,855 )     -       (406 )     (125,609 )     (654,224 )     (925,362 )     (77 )     (96,212 )     62,493       (2,872,252 )
Preferred stock
    -       -       -       -       -       -       -       (61,583 )     -       (61,583 )
                                                                                 
GAAP book value
  $ 288,362     $ 6,005     $ 244,663     $ 71,109     $ 101,310     $ 126,407     $ 109,036     $ 64,585     $ -     $ 1,011,477  
 
(A)    
Assets held within CDOs and other non-recourse structures are not available to satisfy obligations outside of such financings, except to the extent we receive net cash flow distributions from such structures. Furthermore, creditors or beneficial interest holders of these structures have no recourse to the general credit of Newcastle. Therefore, our exposure to the economic losses from such structures is limited to our invested equity in them and economically their book value cannot be less than zero. Therefore, impairment recorded in excess of our investment, which results in negative GAAP book value for a given non-recourse financing structure, cannot economically be incurred and will eventually be reversed through amortization, sales at gains, or as gains at the deconsolidation or termination of such non-recourse financing structure.
(B)    
Represents unlevered investments in CDO securities issued by Newcastle. These CDOs have been deconsolidated as we do not have the power to direct the relevant activities of the CDOs.
(C)    
The following table summarizes the investments and debt in the non-recourse other segment:
 
   
December 31, 2012
 
   
Investments
   
Debt
 
   
Outstanding
   
Carrying
   
Outstanding
   
Carrying
 
   
Face Amount
   
Value
   
Face Amount*
   
Value*
 
Manufactured housing loan portfolio I
  $ 118,746     $ 100,124     $ 90,551     $ 81,963  
Manufactured housing loan portfolio II
    153,193       150,123       117,907       117,191  
Residential mortgage loans
    52,352       38,709       -       -  
Subprime mortgage loans subject to call options
    406,217       405,814       406,217       405,814  
Real estate securities
    63,505       53,979       44,585       40,572  
Operating real estate
    N/A       6,672       6,000       6,000  
    $ 794,013     $ 755,421     $ 665,260     $ 651,540  
 
 
* An aggregate face amount of $71.1 million (carrying value of $62.3 million) of debt represents financing provided by the CDO segment (and included as investments in the CDO segment), which is eliminated upon consolidation.
 
 
1

 
 
(D)    
The $925.2 million of recourse debt is comprised of (i) $772.9 million of repurchase agreements secured by $820.5 million carrying amount of FNMA/FHLMC securities, (ii) $1.4 million of repurchase agreements secured by $21.0 million face amount of senior notes issued by Newcastle CDO VI, which was repurchased by Newcastle in December 2010 and eliminated in consolidation, and (iii) a $150.9 million repurchase agreement secured by $228.5 million carrying value of non-agency residential mortgage backed securities (“RMBS”).
(E)    
The following table summarizes the investments in the unlevered other segment as of December 31, 2012:
 
   
Outstanding Face Amount
   
Carrying Value
   
Number of Investments
 
Real estate securities*
  $ 229,299     $ 68,863       38  
Real estate related loans
    80,298       29,831       2  
Residential mortgage loans
    3,645       2,471       130  
Other investments
    N/A       6,024       1  
    $ 313,242     $ 107,189       171  
 
 
* During the year ended December 31, 2012, Newcastle purchased 17 non-agency RMBS with an aggregate face amount of $90.9 million for an aggregate purchase price of approximately $61.7 million, or an average price of 67.9% of par. As of December 31, 2012, these securities had an aggregate face amount of $89.3 million and a carrying value of $61.3 million.
 
(F)    
Represents the elimination of investments and financings and their related income and expenses between the CDO segment and the other non-recourse segment as the corresponding inter-segment investments and financings are presented on a gross basis within each of these segments.
 
Our investments currently cover the following distinct categories:
 
1)
Real Estate Securities:
We underwrite, acquire and manage a diversified portfolio of credit sensitive real estate securities, including commercial mortgage backed securities  (CMBS), senior unsecured REIT debt issued by REITs, real estate related asset backed securities (ABS), including subprime securities, and FNMA/FHLMC securities. As of December 31, 2012, our real estate securities represented 42.9% of our assets as described below, we intend to spin-off approximately 17.1% of these assets.
 
2)
Real Estate Related Loans:
We acquire and originate loans to real estate owners, including B-notes, mezzanine loans, corporate bank loans, and whole loans.  As of December 31, 2012, our real estate related loans represented 21.4% of our assets.
 
3)
Residential Mortgage Loans:
We acquire residential mortgage loans, including manufactured housing loans and subprime mortgage loans.  As of December 31, 2012, our residential mortgage loans represented 7.5% of our assets.
 
4)
Operating Real Estate:
We acquire and manage direct and indirect interests in operating real estate, including senior living assets.  As of December 31, 2012, our operating real estate represented 5.4% of our assets.
 
5)
Excess Mortgage Servicing Rights:
Since December 2011, we have made investments in Excess MSRs on five pools of residential mortgage loans with an aggregate unpaid principal balance (“UPB”) as of December 31, 2012 of $76.5 billion. As of December 31, 2012, our investments in Excess MSRs represented 6.2% of our assets. As described below, we intend to spin-off these assets.
 
In addition, Newcastle had restricted and unrestricted cash and other miscellaneous net assets, which represented 16.6% of our assets at December 31, 2012.  As described below, we intend to spin off a portion of the assets, which consist primarily of cash.
 
Newcastle’s stock is traded on the New York Stock Exchange under the symbol “NCT.”  Newcastle is a real estate investment trust for federal income tax purposes and is externally managed and advised by an affiliate of Fortress Investment Group LLC, or Fortress.  For its services, our manager is entitled to a management fee and incentive compensation pursuant to a management agreement.  Fortress, through its affiliates, and principals of Fortress collectively owned 4.9 million shares of our common stock and Fortress, through its affiliates, had options to purchase an additional 9.7 million shares of our common stock, which were issued in connection with our equity offerings, representing approximately 7.8% of our common stock on a fully diluted basis, as of December 31, 2012.
 
Significant Developments
 
Excess MSRs
 
We have made investments in Excess MSRs on five pools of residential mortgage loans with an aggregate unpaid principal balance (“UPB”) as of December 31, 2012 of $76.5 billion.   We completed our first Excess MSR investment in December 2011 and completed two additional investments in the Excess MSRs on four pools of mortgage loans in 2012.
 
 
2

 
 
On January 4, 2013, we invested $27 million for a one-third interest in the Excess MSRs on a $13 billion UPB Ginnie Mae loan pool from Nationstar Mortgage Holdings, Inc.  ("Nationstar"). Nationstar will service the loans and will retain a one-third interest in the Excess MSRs; a Fortress Fund will acquire the remaining one-third interest.
 
On January 6, 2013, we agreed to co-invest in Excess MSRs on a portfolio of residential mortgage loans with an approximately $215 billion UPB, as of November 30, 2012, from Nationstar Mortgage Holdings Inc. (“Nationstar”), in conjunction with Nationstar’s purchase of MSRs from Bank of America. We committed to invest approximately $340 million to acquire an approximately one-third interest in the Excess MSRs. The majority of the investment is expected to close in the first quarter of 2013, subject to regulatory and third-party approvals. As in the transaction described above, Nationstar is the servicer and owns a one-third interest. A Fortress Fund acquired the remaining one-third interest. The loans comprise four pools, of which 47% are expected to be loans that are owned, insured or guaranteed by Agency/Government entities and 53% are expected to be non-conforming loans in private label securitizations. On January 31, 2013, we completed the first closing of this co-investment.  The first closing related to Excess MSRs on loans with an aggregate UPB of approximately $58 billion as of December 31, 2012, that are owned, insured, or guaranteed by Fannie Mae or Freddie Mac.
 
On February 27, 2013, we entered into an agreement to co-invest in non-performing mortgage loans with a UPB of approximately $83.0 million as of December 31, 2012. We have invested approximately $35.0 million to acquire a 70% interest in the non-performing mortgage loans. Nationstar has co-invested pari passu with us in 30% of the non-performing mortgage loans and will be the servicer of the loans performing all servicing and advancing functions, and retaining the ancillary income, servicing obligations and liabilities as the servicer.
 
We intend to spin off these and certain other assets, as described below.
 
Residential Assets
 
Since the beginning of the second quarter of 2012, we have purchased non-Agency RMBS serviced by Nationstar outside of our CDOs with an aggregate face amount of approximately $433.5 million and a fair value of approximately $289.8 million as of December 31, 2012. Subsequent to December 31, 2012, we acquired an additional $321.6 million face amount of non-Agency RMBS for approximately $190.6 million.  As of December 31, 2012, we financed $344.2 million face amount of the securities with approximately $150.9 million of repurchase agreements at a cost of one-month LIBOR plus 200 basis points and a weighted average advance rate of 66%. We intend to spin off these assets and certain other assets, as described below.
 
Senior Living Assets
 
During 2012, we completed three acquisitions of senior living assets as follows:
 
In July 2012, we completed the acquisition of eight senior housing facilities for an aggregate purchase price of approximately $143.3 million plus acquisition-related costs. These assets comprise more than 800 beds in senior living facilities located in California, Oregon, Utah, Arizona and Idaho.
 
In November 2012, we completed the acquisition of three senior housing facilities for an aggregate purchase price of approximately $22.6 million plus acquisition-related costs. These assets comprise more than 350 beds in senior living facilities located in Utah.
 
In December 2012, we completed the acquisition of a senior housing facility for an aggregate purchase price of approximately $21.5 million plus acquisition-related costs. This asset comprises more than 200 beds in a senior living facility located in Texas.
 
Sale of CDO X
 
In September 2012, we completed the sale of 100% of our interests in CDO X to the sole owner of the senior notes and another third party, in connection with the liquidation and termination of CDO X. We received $130 million for $89.75 million face amount of subordinated notes and all of our equity in CDO X. As a result, we recorded a gain on sale of $224.3 million and deconsolidated CDO X in the quarter ended September 30, 2012.
 
Spin-Off of Residential Assets
 
Our Board of Directors has unanimously approved a plan to spin off all of our Excess MSRs and certain other assets. We intend to effect the spin-off in the first half of 2013 by distributing shares of our subsidiary, New Residential Investment Corp. (“New Residential”). New Residential will be a publicly traded real estate investment trust that primarily targets opportunistic investments inresidential estate related investments, including, but not limited to Excess MSRs, RMBS, and non-performing loans. New Residential's investment guidelines will be purposefully broad to enable it to make investments in a wide array of assets, including mortgage servicing advances and non-real estate related assets such as consumer loans. New Residential will be externally managed by FIG LLC, an affiliate of Fortress Investment Group LLC, pursuant to a new management agreement with terms that are substantially similar to the terms of Newcastle’s management agreement. Following the spin-off, we currently expect Newcastle's business strategy will be primarily focused on commercial real estate related investments, senior housing, and other strategic opportunities including, but not limited to, opportunities to liquidate, or "collapse", its CDOs.
 
New Residential has filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) with respect to the planned spin-off. The spin-off is subject to certain conditions, such as the SEC declaring effective New Residential’s registration statement, the filing and approval of an application to list New Residential’s common stock on the NYSE (under the symbol “NRZ”) and the formal declaration of the distribution by our Board of Directors.
 
 
3

 
 
Our Investment Strategy
 
Newcastle’s investment strategy focuses predominantly on opportunistic investments in real estate related assets. Our investment guidelines are purposefully broad to enable us to make investments in a wide array of assets, including, but not limited to, any assets that can be held by real estate investment trusts. We do not have specific policies as to the allocation among type of real estate related assets or investment categories since our investment decisions depend on changing market conditions.  Instead, we focus on relative value and in-depth risk/reward analysis. Our focus on relative value means that assets which may be unattractive under particular market conditions may, if priced appropriately to compensate for risks such as projected defaults and prepayments, become attractive relative to other available investments. We generally utilize a match funded financing strategy, when appropriate and available, and active management as part of our investment strategy.
 
The following summarizes our consolidated investment portfolio at December 31, 2012 (dollars in millions):
 
   
Outstanding Face Amount
   
Amortized Cost Basis (1)
   
Percentage of Total Amortized Cost Basis
   
Carrying Value
   
Number of Investments
   
Credit (2)
 
Weighted Average Life (years) (3)
 
Investment (9)
                                         
I. Residential Servicing & Securities
                                     
Excess MSRs Investments
  $ 245     $ 236       7.4 %   $ 245       5       --       5.4  
Non-Agency RMBS (4)
    434       275       8.7 %     290       29      
CC
      6.8  
Total Residential Servicing & Securities Assets
    679       511       16.1 %     535                       6.3  
                                                         
II. Commercial Real Estate Debt & Other Assets
                                         
Commercial Assets
                                                       
CMBS
    475       337       10.6 %     376       76      
BB-
      3.2  
Mezzanine Loans
    528       443       13.9 %     443       17       77%       2.2  
B-Notes
    171       162       5.1 %     162       6       68%       2.1  
Whole Loans
    30       30       0.9 %     30       3       48%       1.1  
CDO Securities (5)
    96       67       2.1 %     71       5      
BB
      3.3  
Other Investments (6)
    25       25       0.8 %     25       1       --       --  
Total Commercial Assets
    1,325       1,064       33.4 %     1,107                       2.6  
                                                         
Residential Assets
                                                       
MH and Residential Loans
    332       290       9.1 %     290       8,881       705       6.1  
Subprime Securities
    124       47       1.5 %     66       40      
CCC
      5.0  
Real Estate ABS
    10       2       0.1 %     1       3      
CCC-
 
    4.7  
      466       339       10.7 %     357                       5.8  
FNMA/FHLMC securities
    769       811       25.5 %     813       58      
AAA
      3.5  
Total Residential Assets
    1,235       1,150       36.2 %     1,170                       4.4  
                                                         
Corporate Assets
                                                       
REIT Debt
    63       62       2.0 %     66       10      
BBB-
      1.8  
Corporate Bank Loans
    392       209       6.6 %     209       7      
CC
      3.6  
Total Corporate Assets
    455       271       8.6 %     275                       3.3  
                                                         
Senior Living Properties Investments(7)
    188       182       5.7 %     182       12       --       --  
                                                         
Total Commercial Real Estate Debt & Other Assets
    3,203       2,667       83.9 %     2,734                       3.4  
TOTAL / WA
  $ 3,882     $ 3,178       100.0 %   $ 3,269                       4.0  
                                                         
Reconciliation to GAAP total assets:
                                                 
Subprime mortgage loans subject to call option (8)
              405                          
Real estate held-for-use
                            7                          
Cash and restricted cash
                            234                          
Other
                            30                          
                                                         
GAAP total assets
                          $ 3,945                          
 
WA – Weighted average, in all tables.
 
 
4

 
 
(1)    
Net of impairment.
 
(2)    
Credit represents the weighted average of minimum rating for rated assets, the loan-to-value ratio (based on the appraised value at the time of purchase or refinancing) for non-rated commercial assets, or the FICO score for non-rated residential assets and an implied AAA rating for FNMA/FHLMC securities. Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time.
 
(3)    
Weighted average life is based on the timing of expected principal reduction on the asset.
 
(4)    
Represents non-Agency RMBS purchased outside of our CDOs since April 2012.
 
(5)    
Represents non-consolidated CDO securities, excluding eight securities with a zero value, which had an aggregate face amount of $107 million.
 
(6)    
Represents an equity investment in a real estate owned property.
 
(7)    
Face amount of senior living property investments represents the gross carrying amount, which excludes accumulated depreciation and amortization.
 
(8)    
Our subprime mortgage loans subject to call option are excluded from the statistics because they result from an option, not an obligation, to repurchase such loans, are noneconomic until such option is exercised, and are offset by an equal liability on the consolidated balance sheet.
 
(9)    
The following tables summarize certain supplemental data relating to our investments (dollars in tables in thousands):
 
 
5

 
 
Excess MSRs
 
Collateral Characteristics:
 
         
Collateral Characteristics
       
   
Current Carrying Amount
   
Original
Principal
 Balance
   
Current
Principal
 Balance
   
Number
of Loans
   
WA
FICO
Score
(A)
   
WA Coupon
   
WA Maturity (months)
   
Average Loan
Age (months)
   
Adjustable
Rate
Mortgage %
(B)
   
1 Month
CPR (C)
   
1 Month
CRR (D)
   
1 Month CDR (E)
   
1 Month
Recapture
Rate
 
Pool 1
                                                                             
Original Pool
  $ 33,977     $ 9,940,385     $ 7,927,465       53,477       685       6.0 %     277       73       19.5 %     23.2 %     19.5 %     4.5 %     40.8 %
Recaptured Loans
    1,997       -       475,746       2,305       753       4.3 %     324       5       0.2 %     2.8 %     2.8 %     0.0 %     0.0 %
Recapture Agreements
    4,936       -       -             -       -       -       -       -       -       -       -       -  
      40,910       9,940,385       8,403,211       55,782       689       5.9 %     280       69       18.4 %     22.2 %     18.7 %     4.2 %     40.6 %
                                                                                                         
Pool 2
                                                                                                       
Original Pool
    33,187       10,383,891       9,239,244       47,285       680       5.3 %     319       61       11.0 %     19.6 %     16.4 %     3.7 %     43.2 %
Recaptured Loans
    748       -       157,876       721       747       4.2 %     327       1       0.0 %     0.2 %     0.2 %     0.0 %     0.0 %
Recapture Agreements
    5,387       -       -             -       -       -       -       -       -       -       -       -  
      39,322       10,383,891       9,397,120       48,006       681       5.2 %     319       60       10.8 %     19.3 %     16.1 %     3.6 %     43.2 %
                                                                                                         
Pool 3
                                                                                                       
Original Pool
    30,272       9,844,114       9,030,073       55,496       668       4.7 %     290       73       37.2 %     15.1 %     10.7 %     4.9 %     22.9 %
Recaptured Loans
    202       -       39,653       232       728       4.0 %     323       1       0.0 %     0.7 %     0.7 %     0.0 %     0.0 %
Recapture Agreements
    4,960       -       -             -       -       -       -       -       -       -       -       -  
      35,434       9,844,114       9,069,726       55,728       668       4.7 %     290       73       37.0 %     15.0 %     10.7 %     4.9 %     22.9 %
                                                                                                         
Pool 4
                                                                                                       
Original Pool
    12,076       6,250,549       5,768,822       28,523       671       3.8 %     316       61       58.3 %     14.2 %     5.4 %     9.3 %     22.4 %
Recaptured Loans
    73       -       19,311       93       750       4.1 %     341       2       0.0 %     0.3 %     0.3 %     0.0 %     0.0 %
Recapture Agreements
    2,887       -       -             -       -       -       -       -       -       -       -       -  
      15,036       6,250,549       5,788,133       28,616       671       3.8 %     316       61       58.1 %     14.2 %     5.4 %     9.3 %     22.4 %
                                                                                                         
Pool 5
                                                                                                       
Original Pool
    109,652       47,572,905       43,895,651       185,761       650       4.8 %     300       65       57.1 %     16.5 %     5.2 %     11.9 %     1.7 %
Recapture Loans
    30       -       6,910       29       739       3.6 %     343       1       6.0 %     0.0 %     0.0 %     0.0 %     0.0 %
Recapture Agreements
    4,652       -       -             -       -       -       -       -       -       -       -       -  
      114,334       47,572,905       43,902,561       185,790       650       4.8 %     300       65       57.1 %     16.5 %     5.2 %     11.9 %     1.7 %
Total/WA
  $ 245,036     $ 83,991,844     $ 76,560,751       373,922       662       4.9 %     300       65       44.9 %     17.1 %     8.7 %     9.0 %     25.3 %
 
Continued on next page.
 
 
6

 
 
Excess MSRs
 
Collateral Characteristics:
 
   
Collateral Characteristics
 
   
Uncollected Payments (F)
   
Delinquency 30 Days (F)
   
Delinquency 60 Days (F)
   
Delinquency 90+ Days (F)
   
Loans in Foreclosure
   
Real Estate Owned
   
Loans in Bankruptcy
 
Pool 1
                                         
Original Pool
    9.9 %     5.8 %     2.1 %     1.2 %     3.9 %     0.9 %     2.6 %
Recaptured Loans
    0.3 %     0.4 %     0.0 %     0.0 %     0.0 %     0.0 %     0.1 %
Recapture Agreements
    -       -       -       -       -       -       -  
      9.3 %     5.5 %     1.9 %     1.1 %     3.7 %     0.8 %     2.5 %
                                                         
Pool 2
                                                       
Original Pool
    14.1 %     5.1 %     1.9 %     1.5 %     7.4 %     0.2 %     5.1 %
Recaptured Loans
    0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %
Recapture Agreements
    -       -       -       -       -       -       -  
      13.9 %     5.0 %     1.9 %     1.4 %     7.3 %     0.2 %     5.0 %
                                                         
Pool 3
                                                       
Original Pool
    14.4 %     4.4 %     1.6 %     1.4 %     7.5 %     2.2 %     3.5 %
Recaptured Loans
    0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %
Recapture Agreements
    -       -       -       -       -       -       -  
      14.4 %     4.3 %     1.6 %     1.4 %     7.5 %     2.2 %     3.5 %
                                                         
Pool 4
                                                       
Original Pool
    19.1 %     3.8 %     1.6 %     1.3 %     12.1 %     2.1 %     4.7 %
Recaptured Loans
    0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %
Recapture Agreements
    -       -       -       -       -       -       -  
      19.0 %     3.7 %     1.6 %     1.3 %     12.1 %     2.1 %     4.7 %
                                                         
Pool 5
                                                       
Original Pool
    28.8 %     9.5 %     2.3 %     4.5 %     17.4 %     3.0 %     5.1 %
Recapture Loans
    0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %     0.0 %
Recapture Agreements
    -       -       -       -       -       -       -  
      28.8 %     9.5 %     2.3 %     4.5 %     17.4 %     3.0 %     5.1 %
Total/WA
    22.4 %     7.4 %     2.1 %     3.2 %     13.1 %     2.2 %     4.6 %
 
(A)
Weighted average FICO scores are reported based on information provided by the loan servicer on a monthly basis. The loan servicer generally updates the FICO score on a monthly basis.
 
(B)  
Adjustable Rate Mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages.
 
(C)  
Constant prepayment rate represents the annualized rate of the prepayments during the month as a percentage of the total principal balance of the pool.
 
(D)  
1 Month CRR, or the voluntary prepayment rate, represents the annualized rate of the voluntary prepayments during the month as a percentage of the total principal balance of the pool.
 
(E)  
1 Month CDR, or the involuntary prepayment rate, represents the annualized rate of the involuntary prepayments (defaults) during the month as a percentage of the total principal balance of the pool.
 
(F)  
Uncollected Payments represents the percentage of the total principal balance of the pool that corresponds to loans for which the most recent payment was not made. Delinquency 30 Days, Delinquency 60 Days and Delinquency 90+ Days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30-59 days, 60-89 days or more than 90 days, respectively.
 
 
7

 
Non-Agency RMBS (A)
 
   
Security Characteristics
 
Vintage (B)
 
Average
 Minimum
 Rating (C)
   
Number of
Securities
   
Outstanding
Face Amount
   
Amortized
Cost Basis
   
Percentage of
Total
Amortized Cost
Basis
   
Carrying
Value
   
Principal
Subordination
(D)
   
Excess
Spread (E)
 
Pre 2004
 
CC
      12     $ 28,738     $ 22,280       8.2 %   $ 22,909       18.8 %     3.7 %
2004
   B-       4       41,434       21,202       7.7 %     24,722       16.6 %     3.8 %
2005
  D       1       2,529       1,413       0.5 %     1,603       0.0 %     0.0 %
2006
 
CC
      5       220,749       133,993       48.8 %     139,678       5.8 %     2.7 %
2007 and later
 
CCC-
      7       140,060       95,598       34.8 %     100,844       13.1 %     3.3 %
Total/WA
 
CC
      29     $ 433,510     $ 274,486       100.0 %   $ 289,756       10.0 %     3.0 %
 
   
Collateral Characteristics
 
Vintage (B)
 
Average Loan Age (years)
   
Collateral Factor (F)
   
3 month CPR (G)
   
Delinquency (H)
   
Cumulative Losses to Date
 
Pre 2004
    9.7       0.07       10.2 %     16.3 %     3.3 %
2004
    8.3       0.08       11.0 %     20.5 %     3.7 %
2005
    7.1       0.22       10.1 %     22.0 %     14.3 %
2006
    6.5       0.28       7.2 %     28.6 %     22.1 %
2007 and later
    6.0       0.46       10.6 %     29.8 %     26.5 %
Total / WA
    6.7       0.31       8.9 %     27.4 %     20.5 %
 
(A)
Represents non-agency RMBS purchased outside of our CDOs since April 2012.
(B)
The year in which the securities were issued.
(C)
Ratings provided above were determined by third party rating agencies as of a particular date, may not be current and are subject to change at any time. We had approximately $1.5 million of non-agency RMBS assets that were on negative watch for possible downgrade by at least one rating agency as of December 31, 2012.
(D)
The percentage of the outstanding face amount of securities and residual interests that is subordinate to our investments.
(E)
The annualized amount of interest received on the underlying loans in excess of the interest paid on the securities, as a percentage of the outstanding collateral balance.
(F)
The ratio of original unpaid principal balance of loans still outstanding.
(G)
Three month average constant prepayment rate.
(H)
The percentage of underlying loans that are 90+ days delinquent, or in foreclosure or considered real estate owned (REO).
 
CMBS
 
Deal Vintage (A)
 
Average Minimum Rating (B)
   
Number
   
Outstanding Face Amount
   
Amortized Cost Basis
   
Percentage of Total Amortized Cost Basis
   
Carrying Value
   
Delinquency 60+
/FC/REO (C)
   
Principal Subordination (D)
   
Weighted Average Life (years) (E)
 
Pre 2004
   B       17     $ 60,384     $ 55,223       16.4 %   $ 52,017       12.1 %     19.2 %     1.0  
2004
 
BB+
      17       79,600       69,408       20.6 %     70,535       1.7 %     7.1 %     2.0  
2005
 
BB-
      9       80,133       29,709       8.8 %     49,009       5.8 %     6.8 %     2.7  
2006
   B+       21       148,646       94,999       28.2 %     105,401       7.0 %     12.6 %     3.3  
2007
 
CCC+
      4       15,237       2,521       0.7 %     4,539       5.5 %     7.0 %     1.5  
2010
 
BB
      3       35,000       32,990       9.8 %     37,499       0.0 %     2.0 %     7.9