Annual report pursuant to Section 13 and 15(d)

DERIVATIVES

v3.20.4
DERIVATIVES
12 Months Ended
Dec. 31, 2020
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.

New Residential may at times hold to-be-announced forward contract positions (“TBAs”) 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 may enter 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 may also utilize 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 Consolidated Balance Sheets as follows:
December 31,
Balance Sheet Location 2020 2019
Derivative assets
Interest Rate Swaps Other assets $ —  $ 155 
Interest Rate Lock Commitments Other assets 289,355  41,346 
TBAs Other assets 789  — 
$ 290,144  $ 41,501 
Derivative liabilities
Interest Rate Swaps(A)
Accrued expenses and other liabilities $ 25  $ — 
Interest Rate Lock Commitments Accrued expenses and other liabilities 281  1,455 
Forward Loan Sale Commitments Accrued expenses and other liabilities —  27 
TBAs Accrued expenses and other liabilities 119,456  5,403 
$ 119,762  $ 6,885 
(A)Net of $237.7 million and $171.7 million of related variation margin accounts as of December 31, 2020 and December 31, 2019, respectively.

The following table summarizes notional amounts related to derivatives:
December 31,
2020 2019
Interest Rate Caps(A)
$ —  $ 12,500 
Interest Rate Swaps(B)
6,515,000  4,900,000 
Interest Rate Lock Commitments 15,031,345  4,043,935 
Forward Loan Sale Commitments —  43,654 
TBAs, short position(C)
23,529,408  5,048,000 
TBAs, long position(C)
—  11,692,212 
(A)As of December 31, 2019, caps LIBOR at 4.0% 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 $6.5 billion notional of Receive LIBOR/Pay Fixed of 2.2% and $0.0 billion notional of Receive Fixed of 0.0%/Pay LIBOR with weighted average maturities of 47 months and 0 months, respectively, as of December 31, 2020. Includes $0.0 billion notional of Receive LIBOR/Pay Fixed of 0.0% and $0.9 billion notional of Received Fixed of 1.9%/Pay LIBOR with weighted average maturities of 36 months and 87 months, respectively, as of December 31, 2019.
(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,
2020 2019 2018
Change in fair value of derivative investments(A)
Interest Rate Caps $ —  $ (3) $ 431 
Interest Rate Swaps (53,467) (58,918) (108,098)
TBAs —  2,778  (567)
(53,467) (56,143) (108,234)
Gain (loss) on settlement of investments, net
Interest Rate Caps $ —  $ —  $ (603)
Interest Rate Swaps (2,685) (8,671) 65,823 
TBAs(B)
(72,127) (121,252) (10,353)
(74,812) (129,923) 54,867 
Gain on originated mortgage loans, held for sale, net(A)
Interest Rate Lock Commitments $ 249,183  $ 26,151  $ 23 
TBAs (115,243) 3,067  (5,064)
Forward Loan Sale Commitments 27  (66) (283)
133,967  29,152  (5,324)
Total income (losses) $ 5,688  $ (156,914) $ (58,691)
(A)Represents unrealized gains (losses).
(B)Excludes $361.8 millionand $53.4 million in loss on settlement and $1.2 million in gain on settlement included as a realized gain on sale of originated mortgage loans, held-for-sale, net (Note 9) for the years ended December 31, 2020, 2019 and 2018, respectively.