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Mortgage REIT's latest securitization of seasoned loans smaller than previously envisioned

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Mortgage REIT's latest securitization of seasoned loans smaller than previously envisioned

President and CEO Michael Nierenberg said during a February conference callthat the mortgage REIT hoped to sponsor a new securitization of highly seasonedloans in an amount of "something around $400 million to $500 million"in either late March or April. But the deal for which rating agencies publishedpresale reports in recent days is sized considerably below that range.

Standard& Poor's Ratings Services said March 29 that New Residential Mortgage LoanTrust 2016-1 would have a closing pool balance of $255.8 million, excluding thedeferred balances on loans that have received principal forbearancemodifications, and a total note amount of $261 million in the aggregate,including unrated classes. S&PRatings and Global Market Intelligence are owned by McGraw Hill Financial Inc.

Thesecuritization would be the sixth "call-rights" deal conducted by NewResidential since the start of 2014 whereby the mortgage REIT constructs poolsout of loans generated through clean-up-calls of older-vintage RMBS trusts. NewResidential is externally managed by an affiliate of .

AsNew Residential explained in its most recent annual report on Form , call rights permit theholder of the rights to purchase all of the mortgage loans which arecollateralizing the related securitization for a price generally equal to theoutstanding balance of the loans plus interest and certain other amounts thatmay include outstanding servicing advances and unpaid servicing fees. Theybecome exercisable when the current principal balance of the underlying mortgageloans is generally equal to or lower than 10% of their original balance.

NewResidential said in the filing that its strategy of acquiring and executingcall rights allows it to realize what it believes to be a "meaningfuldiscrepancy" between the value of nonagency RMBS and the recovery value ofthe underlying collateral.

Itreported holding call rights to securitization trusts collateralized bymortgage loans with an unpaid principal balance of approximately $200 billionas of Dec. 31, 2015. Nierenberg said during the February call that the mortgageREIT had executed clean-up call rights in 28 seasoned, nonagency deals totaling$654 million during the fourth quarter of 2015 as well as in another 14 dealstotaling $200 million after year-end 2015. The mortgage REIT most recentlycompleted a call-rights securitization in November 2015.

"Westrive to make as much money as we possibly can on these call deals,"Nierenberg said during the February call, according to a of his remarks, in responseto an analyst's question about the economics of the transactions in what wasviewed at the time as a challenging market environment. The CEO added that "themortgage market has hung in there particularly well."

Hehad previously disclosed during an August2015 call that New Residential had been "averagingapproximately 2 to 3 points of P&L per deal" since beginning theresecuritization strategy.

TheNew Residential Mortgage Loan Trust 2016-1 pool contains 1,789 loans with anaverage balance of $143,000 from numerous terminated trusts originally issuedfrom 2001 through 2005, including 322 loans from Merrill Lynch MortgageInvestors Inc. MortgageLoan Asset-Backed Certificates Series 2005-HE2 and a total of 861 loans thatwere associated with various Residential Accredit Loans Inc. trusts.

Twocomparable New Residential Mortgage Trust deals in 2015 had pools valued at$334.5 million and $519.8 million, according to Moody's. The closing poolbalances of New Residential Mortgage Loan Trust 2014-2 and 2014-3 were valuedat $461.1 million and $527.7 million, according to S&P Ratings.

Themajority of the loans in the 2016-1 pool represent performing loans, S&PRatings said; a subset of loans either have been modified or are delinquent byone payment under the Mortgage Bankers Association's method of calculatingdelinquencies. The weighted-average combined loan-to-value ratio for the loansin the pool totals 57% relative to an original combined LTV of 75.6%, S&PRatings said. The loans have weighted-average seasoning of 151 months.Fixed-rate loans account for 94.2% of the pool. A subsidiary of servicesapproximately 65.3% of the pool.

Moody'sobserved that the current weighted-average LTV rate for the New ResidentialMortgage Loan Trust 2016-1 pool was "notably higher" than thatassociated with the two 2015-vintage pools, and the rating agency said thatcertain other aspects of the pool are weaker than the previous NewResidential-sponsored securitizations.

Atthe same time, Moody's said that the 2016-1 pool's current weighted-average LTVwas lower than that associated with the three other transactions that itincluded alongside the 2015-vintage New Residential deals as a basis forcomparison: FirstKey Mortgage LLC'sTowd Point Mortgage Trust 2015-2 and CitigroupInc.'s Citigroup Mortgage Loan Trust 2015-RP2 and CitigroupMortgage Loan Trust 2015-A.

DBRSand Fitch Ratings on March 30 each assigned ratings to the latest Towd Pointdeal, Towd Point Mortgage Trust 2016-1: a securitization of nearly $772.8million in performing and reperforming loans.