Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.4.0.3
DERIVATIVES
3 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
 
As of March 31, 2016, New Residential’s derivative instruments included economic hedges that were not designated as hedges for accounting purposes. New Residential uses economic hedges to hedge a portion of its interest rate risk exposure. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, as well as other factors. New Residential’s credit risk with respect to economic hedges is the risk of default on New Residential’s investments that results from a borrower’s or counterparty’s inability or unwillingness to make contractually required payments.

As of March 31, 2016, New Residential held to-be-announced forward contract positions (“TBAs”) of $2.4 billion in a short notional amount of Agency RMBS and any amounts or obligations owed by or to New Residential are subject to the right of set-off with the TBA counterparty. New Residential’s net short position in TBAs was entered into as an economic hedge in order to mitigate New Residential’s interest rate risk on certain specified mortgage backed securities. As of March 31, 2016, New Residential separately held TBAs of $1.1 billion in a long notional amount of Agency RMBS and any amounts or obligations owed by or to New Residential are subject to the right of setoff with the TBA counterparty. $0.2 billion of the long notional amount of Agency RMBS included TBAs purchased for which the specific securities were not identified as of March 31, 2016 and, as such, the positions were recorded as derivatives within the Accrued Expenses and Other Liabilities line on the condensed balance sheet. As part of executing these trades, New Residential has entered into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements, and various other provisions. New Residential has fulfilled all obligations and requirements entered into under these agreements.

New Residential’s derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:
 
Balance Sheet Location
 
March 31, 2016
 
December 31, 2015
Derivative assets
 
 
 
 
 
Interest Rate Caps
Other assets
 
$
1,720

 
$
2,689

 
 
 
$
1,720

 
$
2,689

Derivative liabilities
 
 
 
 
 
TBAs
Accrued expenses and other liabilities
 
$
7,736

 
$
2,058

Interest Rate Swaps
Accrued expenses and other liabilities
 
27,206

 
11,385

 
 
 
$
34,942

 
$
13,443

 
The following table summarizes notional amounts related to derivatives:
 
March 31, 2016
 
December 31, 2015
TBAs, short position(A)
$
2,418,000

 
$
1,450,000

TBAs, long position(A)
1,143,000

 
750,000

Interest Rate Caps(B)
2,565,000

 
3,400,000

Interest Rate Swaps, short positions(C)
2,444,000

 
2,444,000


(A)
Represents the notional amount of Agency RMBS, classified as derivatives.
(B)
Caps LIBOR at 0.50% for $765.0 million of notional, at 0.75% for $1,650.0 million of notional, and at 4.00% for $150.0 million of notional. The weighted average maturity of the interest rate caps as of March 31, 2016 was 14 months.
(C)
Receive LIBOR and pay a fixed rate. The weighted average maturity of the interest rate swaps as of March 31, 2016 was 22 months and the weighted average fixed pay rate was 1.20%.

The following table summarizes gains (losses) recorded in relation to derivatives:
 
 
For the Three Months Ended March 31,
 
 
2016
 
2015
Other income (loss), net(A)
 
 
 
 
TBAs
 
$
(5,531
)
 
$
(3,554
)
Interest Rate Swaps
 
(15,821
)
 
(3,352
)
Interest Rate Caps
 
(951
)
 
(124
)
 
 
(22,303
)
 
(7,030
)
Gain (loss) on settlement of investments, net
 
 
 
 
TBAs
 
(28,171
)
 
(16,033
)
Interest Rate Caps
 
(1,124
)
 

Interest Rate Swaps
 
(3,338
)
 
(6,557
)
 
 
(32,633
)
 
(22,590
)
Total gains (losses)
 
$
(54,936
)
 
$
(29,620
)


(A)
Represents unrealized gains (losses).