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New Residential to purchase mortgage servicing rights from PHH Mortgage

New Residential Investment Corp. entered into an agreement with PHH Mortgage Corp., through subsidiary New Residential Mortgage LLC, to purchase approximately $72 billion in unpaid balance of mortgage servicing rights.

The agreement comes in the light of PHH Corp.'s decision to exit from the private-label services originations business. In another transaction, PHH Mortgage agreed to sell all of its portfolio of Government National Mortgage Association mortgage servicing rights to Lakeview Loan Servicing LLC.

Under the agreement, New Residential will purchase seasoned agency and private-label mortgage servicing rights from PHH Mortgage. Total proceeds to PHH are expected to be approximately $912 million, including $612 million from the sale of the mortgage servicing rights and $300 million from the sale of related servicer advances. The proceeds exclude estimated transaction fees and expenses of 5% of mortgage servicing rights value, and represent a valuation of 84 basis points on the total unpaid balance of $72 billion as of Oct. 31.

PHH incurred aggregate realized and unrealized losses of approximately $135 million from its mortgage servicing rights-related hedges and Ginnie Mae mortgage servicing rights during the fourth quarter. The company intends to terminate its related hedge positions in conjunction with signing the agreement.

As a part of the agreement, PHH Mortgage will also subservice 480,000 mortgage loans underlying the mortgage servicing rights it is selling to New Residential for an initial period of three years, subject to termination provisions.

The transaction is expected to close in the first half of 2017 and is subject to approval from shareholders of PHH. Customary closing requirements include antitrust approval and consent from certain loan originators, government-sponsored enterprises, private loan investors and regulators.

PHH plans to use proceeds from the deal to repay its senior unsecured notes and borrowings under its servicing advance facility and to pay taxes. Once the initial sale under the transaction is complete, the company expects to make an offer to buy its senior unsecured notes under the terms of its bond indentures, at a price equal to 101% of the outstanding principal amount.