New Residential Investment Corp. is a real estate investment trust, which focuses on investing in, and actively managing, investments related to residential real estate. It operates through the followings segments: Excess Mortgage Servicing Rights (MSRs), MSRs, Servicer Advances, Real Estate Securities, Residential Mortgage Loans, Consumer Loans, and Corporate. The Excess MSRs, MSRs, Servicer Advances, Real Estate Securities, Residential Mortgage Loans, and Consumer Loans segments represent the investments in their respective categories. The Corporate segment includes general and administrative expenses, the management fees and incentive compensation, and corporate cash and related interest income. It focuses on investing in, and actively managing, investments primarily related to residential real estate. The company is headquartered in New York, NY.
In our view, the approximately $10 trillion mortgage servicing market presents a number of compelling investment opportunities. A mortgage servicing right (“MSR”) provides a mortgage servicer with the right to service a pool of mortgage loans in exchange for a fee.
Approximately 74% of MSRs are currently owned by banks. We expect this number will continue to decline as banks face pressure to reduce their MSR exposure as a result of heightened capital reserve requirements under Basel III, regulatory scrutiny and a more challenging servicing environment. As banks continue to sell MSRs, there is an opportunity for entities such as New Residential to participate through co-investment in the corresponding Excess MSRs.
An MSR is made up of two components: a basic fee and an Excess MSR. The basic fee is the amount of compensation for the performance of servicing duties, and the Excess MSR is the amount that exceeds the basic fee. As the owner of an Excess MSR, we collect monthly cash flows from the MSR, but do not assume any servicing duties, advance obligations or liabilities associated with the portfolios underlying our investment.
As a wholly owned subsidiary of Newcastle, New Residential pioneered investments in Excess MSRs.
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