Annual report pursuant to Section 13 and 15(d)

DERIVATIVES

v3.19.3.a.u2
DERIVATIVES
12 Months Ended
Dec. 31, 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 December 31, 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.

As of December 31, 2019, New Residential also 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.

In addition, as of December 31, 2019, New Residential held 42.0 million in warrants to acquire Series F convertible preferred stock in the Consumer Loan Seller, which were valued at $28.0 million and are reported in Other Assets (Note 2) on the balance sheet.

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

 
$
3

Interest Rate Swaps
Other assets
 
155

 

Interest Rate Lock Commitments
Other assets
 
41,346

 
10,851

Forward Loan Sale Commitments
Other assets
 

 
39

TBAs
Other assets
 

 

 
 
 
$
41,501

 
$
10,893

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

 
$
5,245

Interest Rate Lock Commitments
Accrued expenses and other liabilities
 
1,455

 
223

Forward Loan Sale Commitments
Accrued expenses and other liabilities
 
27

 

TBAs
Accrued expenses and other liabilities
 
5,403

 
23,921

 
 
 
$
6,885

 
$
29,389



(A)
Net of $171.8 million and $106.1 million of related variation margin accounts as of December 31, 2019 and December 31, 2018, respectively.

The following table summarizes notional amounts related to derivatives:
 
December 31,
 
2019
 
2018
Interest Rate Caps(A)
$
12,500

 
$
50,000

Interest Rate Swaps(B)
4,900,000

 
4,725,000

Interest Rate Lock Commitments
4,043,935

 
823,187

Forward Loan Sale Commitments
43,654

 
30,274

TBAs, short position(C)
5,048,000

 
5,904,300

TBAs, long position(C)
11,692,212


5,067,200



(A)
As of December 31, 2019, caps LIBOR at 4.00% for $12.5 million of notional. The weighted average maturity of the interest rate caps as of December 31, 2019 was 11 months.
(B)
Includes $4.0 billion notional of Receive LIBOR/Pay Fixed of 3.2% and $0.9 billion notional of Receive Fixed of 1.9%/Pay LIBOR with weighted average maturities of 36 months and 87 months, respectively, as of December 31, 2019. Includes $4.7 billion notional of Receive LIBOR/Pay Fixed of 3.21% with weighted average maturities of 52 months, as of December 31, 2018.
(C)
Represents the notional amount of Agency RMBS, classified as derivatives.

The following table summarizes all income (losses) recorded in relation to derivatives:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Change in fair value of derivative investments(A)
 
 
 
 
 
Interest Rate Caps
$
(3
)
 
$
431

 
$
323

Interest Rate Swaps
(58,918
)
 
(108,098
)
 
(720
)
Unrealized gains(losses) on Interest Rate Lock Commitments

 

 

Forward Loan Sale Commitments

 

 

TBAs
2,778

 
(567
)
 
(1,793
)
 
(56,143
)
 
(108,234
)
 
(2,190
)
Gain (loss) on settlement of investments, net
 
 
 
 
 
Interest Rate Caps
$

 
$
(603
)
 
$
(1,911
)
Interest Rate Swaps
(8,671
)
 
65,823

 
6,921

TBAs(B)
(121,252
)
 
(10,353
)
 
(44,224
)
 
(129,923
)
 
54,867

 
(39,214
)
Gain on originated mortgage loans, held for sale, net(A)
 
 
 
 
 
Interest Rate Lock Commitments
$
26,151

 
$
23

 
$

TBAs
3,067

 
(5,064
)
 

Forward Loan Sale Commitments
(66
)
 
(283
)
 

 
29,152

 
(5,324
)
 

Total income (losses)
$
(156,914
)
 
$
(58,691
)
 
$
(41,404
)

(A)
Represents unrealized gains (losses).
(B)
Excludes $53.4 million and $1.2 million in loss on settlement included within gain on originated mortgage loans, held-for-sale, net (Note 9) for the years ended December 31, 2019 and 2018, respectively.