Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.19.3
DERIVATIVES
9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
 
New Residential uses interest rate swaps and interest rate caps as 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 September 30, 2019, New Residential held to-be-announced forward contract positions (“TBAs”) which were entered into as an economic hedge in order to mitigate New Residential’s interest rate risk on certain specified mortgage backed securities 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.

In addition, as of September 30, 2019, New Residential held interest rate lock commitments (“IRLCs”), which represent a commitment to a particular interest rate provided the borrower is able to close the loan within a specified period, and forward loan sale and securities delivery commitments, which represent a commitment to sell specific mortgage loans at prices which are fixed as of the forward commitment date. New Residential enters into forward loan sale and securities delivery commitments in order to hedge the exposure related to IRLCs and mortgage loans that are not covered by mortgage loan sale commitments.

New Residential’s derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:
 
Balance Sheet Location
 
September 30, 2019
 
December 31, 2018
Derivative assets
 
 
 
 
 
Interest Rate Caps
Other assets
 
$

 
$
3

Interest Rate Lock Commitments
Other assets
 
26,214

 
10,851

Forward Loan Sale Commitments
Other assets
 

 
39

TBAs
Other assets
 
10,498

 

 
 
 
$
36,712

 
$
10,893

Derivative liabilities
 
 
 
 
 
Interest Rate Swaps(A)
Accrued expenses and other liabilities
 
$
135

 
$
5,245

Interest Rate Lock Commitments
Accrued expenses and other liabilities
 
1,676

 
223

Forward Loan Sale Commitments
Accrued expenses and other liabilities
 
31

 


TBAs
Accrued expenses and other liabilities
 

 
23,921

 
 
 
$
1,842

 
$
29,389


(A)
Net of $165.7 million of related variation margin accounts as of September 30, 2019. As of December 31, 2018, net of $106.1 million of related variation margin accounts existed.
 
The following table summarizes notional amounts related to derivatives:
 
September 30, 2019
 
December 31, 2018
Interest Rate Caps(A)
$
50,000

 
$
50,000

Interest Rate Swaps(B)
7,780,000

 
4,725,000

Interest Rate Lock Commitments
2,735,387

 
823,187

Forward Loan Sale Commitments
6,893

 
30,274

TBAs, short position(C)
5,488,000

 
5,904,300

TBAs, long position(C)
9,709,894

 
5,067,200


(A)
As of September 30, 2019, caps LIBOR at 4.00% for $50.0 million of notional. The weighted average maturity of the interest rate caps as of September 30, 2019 was 14 months.
(B)
Includes $4.5 billion notional of Receive LIBOR/Pay Fixed of 3.16% and $3.3 billion notional of Receive Fixed of 1.51%/Pay LIBOR with weighted average maturities of 43 months and 65 months, respectively, as of September 30, 2019.
(C)
Represents the notional amount of Agency RMBS, classified as derivatives.

The following table summarizes all income (losses) recorded in relation to derivatives:
 
 
For the  
 Three Months Ended 
 September 30,
 
For the  
 Nine Months Ended 
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Change in fair value of derivative instruments(A)
 
 
 
 
 
 
 
 
Interest Rate Caps
 
$

 
$
(2
)
 
$
(3
)
 
$
436

Interest Rate Swaps
 
42,306

 
18,785

 
(26,893
)
 
19,668

Unrealized gains (losses) on Interest Rate Lock Commitments
 
3,002

 
(2,247
)
 
13,911

 
(2,247
)
Forward Loan Sale Commitments
 
(272
)
 
(17
)
 
(70
)
 
(17
)
TBAs
 
13,472

 
7,780

 
11,067

 
10,145

 
 
58,508

 
24,299

 
(1,988
)
 
27,985

Gain (loss) on settlement of investments, net
 
 
 
 
 
 
 
 
Interest Rate Caps
 

 

 

 
(603
)
Interest Rate Swaps
 
(10,338
)
 
(656
)
 
(32,529
)
 
37,287

TBAs(B)
 
(3,809
)
 
20,115

 
(119,895
)
 
39,408

 
 
(14,147
)
 
19,459

 
(152,424
)
 
76,092

 
 
 
 
 
 
 
 
 
Total income (losses)
 
$
44,361

 
$
43,758

 
$
(154,412
)
 
$
104,077



(A)
Represents unrealized gains (losses).
(B)
Excludes $32.1 million and $61.9 million in loss on settlement included within gain on sale of originated mortgage loans, net (Note 8) for the three and nine months ended September 30, 2019, respectively.