Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.7.0.1
DERIVATIVES
6 Months Ended
Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
 
As of June 30, 2017, 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 June 30, 2017, New Residential held to-be-announced forward contract positions (“TBAs”) of $4.3 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 June 30, 2017, New Residential separately held TBAs of $2.6 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 set-off with the TBA counterparty. 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
 
June 30, 2017
 
December 31, 2016
Derivative assets
 
 
 
 
 
Interest Rate Caps
Other assets
 
$
3,316

 
$
4,251

TBAs
Other assets
 
10,861

 
2,511

 
 
 
$
14,177

 
$
6,762

Derivative liabilities
 
 
 
 
 
Interest Rate Swaps(A)
Accrued expenses and other liabilities
 
$
55

 
$
3,021

 
 
 
$
55

 
$
3,021


(A)
Net of $16.9 million of related variation margin accounts.
 
The following table summarizes notional amounts related to derivatives:
 
June 30, 2017
 
December 31, 2016
TBAs, short position(A)
$
4,345,000

 
$
3,465,500

TBAs, long position(A)
2,597,000

 
2,125,552

Interest Rate Caps(B)
897,500

 
1,185,000

Interest Rate Swaps(C)
5,025,500

 
3,640,000


(A)
Represents the notional amount of Agency RMBS, classified as derivatives.
(B)
Caps LIBOR at 0.50% for $550.0 million of notional, at 0.75% for $12.5 million of notional, at 2.00% for $185.0 million of notional, and at 4.00% for $150.0 million of notional. The weighted average maturity of the interest rate caps as of June 30, 2017 was 14 months.
(C)
Receive LIBOR and pay a fixed rate. The weighted average maturity of the interest rate swaps as of June 30, 2017 was 24 months and the weighted average fixed pay rate was 1.57%.

The following table summarizes all income (losses) recorded in relation to derivatives:
 
 
For the  
 Three Months Ended 
 June 30,
 
For the  
 Six Months Ended 
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Other income (loss), net(A)
 
 
 
 
 
 
 
 
TBAs
 
$
1,414

 
$
(4,993
)
 
$
1,537

 
$
(10,524
)
Interest Rate Caps
 
(843
)
 
(3,195
)
 
(270
)
 
(4,146
)
Interest Rate Swaps
 
(8,581
)
 
(3,415
)
 
(4,951
)
 
(21,490
)
 
 
(8,010
)
 
(11,603
)
 
(3,684
)
 
(36,160
)
Gain (loss) on settlement of investments, net
 
 
 
 
 
 
 
 
TBAs
 
(22,609
)
 
(11,066
)
 
(29,410
)
 
(39,237
)
Interest Rate Caps
 

 

 
(562
)
 
(1,124
)
Interest Rate Swaps
 
(5,125
)
 
(3,329
)
 
(9,598
)
 
(4,413
)
 
 
(27,734
)
 
(14,395
)
 
(39,570
)
 
(44,774
)
Total income (losses)
 
$
(35,744
)
 
$
(25,998
)
 
$
(43,254
)
 
$
(80,934
)


(A)
Represents unrealized gains (losses).