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NEW YORK CITY-Locally based Newcastle Investment Corp. has agreed to buy 7,300 subprime residential mortgage loans for $1.7 billion. The transaction is expected to be complete in the next 30 days, according to company executives.

"We are very excited about this transaction. Constrained liquidity and the re-pricing of credit risk in the subprime mortgage market have created a unique opportunity for us to purchase a portfolio of loans at an attractive price with early payment default protection," says Kenneth Riis, Newcastle CEO and president, in a statement. "We have underwritten this investment to generate an attractive return on capital using conservative default and loss assumptions."

The mortgage loans are located across the US, with 28% of the residential properties in California, 13% in Florida, 10% in New York. The remaining 49% are split between 45 additional states. According to Newcastle executives, "Approximately 94% of the portfolio is secured by first liens and 92% of the assets are owner occupied. The weighted average coupon is 8.02%. 74% of the mortgage loans are adjustable rate and 26% are fixed rate."

Most of the loans are fixed for a two- to three-year period and then they adjust over Libor and are subject to periodic and lifetime interest rate caps. Nationstar Mortgage LLC will service the loans.

The Newcastle acquisition will be financed under a repurchase agreement. Executives say, "The company expects to finance this investment on a long-term basis through the securitization markets in the upcoming months, following which we expect to have approximately $75 million of capital invested in this portfolio."

Instant Insights /

Newcastle Pays $1.7B for 7,000 Mortgage Loans

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