Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.10.0.1
DERIVATIVES
6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
 
As of June 30, 2018, 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, 2018, New Residential held to-be-announced forward contract positions (“TBAs”) of $2.2 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, 2018, 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 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, 2018
 
December 31, 2017
Derivative assets
 
 
 
 
 
Interest Rate Caps
Other assets
 
$
10

 
$
2,423

 
 
 
$
10

 
$
2,423

Derivative liabilities
 
 
 
 
 
Interest Rate Swaps(A)
Accrued expenses and other liabilities
 
$
111

 
$

TBAs
Accrued expenses and other liabilities
 
7,700

 
697

 
 
 
$
7,811

 
$
697


(A)
Net of less than $1.9 million of related variation margin accounts as of June 30, 2018. As of December 31, 2017, no variation margin accounts existed.
 
The following table summarizes notional amounts related to derivatives:
 
June 30, 2018
 
December 31, 2017
TBAs, short position(A)
$
2,217,500

 
$
3,101,100

TBAs, long position(A)
1,110,400

 
1,014,000

Interest Rate Caps(B)
162,500

 
772,500

Interest Rate Swaps(C)
4,200,000

 


(A)
Represents the notional amount of Agency RMBS, classified as derivatives.
(B)
As of June 30, 2018, caps LIBOR at 4.00% for $12.5 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, 2018 was 7 months.
(C)
Receive LIBOR and pay a fixed rate. The weighted average maturity of the interest rate swaps as of June 30, 2018 was 36 months and the weighted average fixed pay rate was 2.85%.

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,
 
 
2018
 
2017
 
2018
 
2017
Other income (loss), net(A)
 
 
 
 
 
 
 
 
TBAs
 
$
371

 
$
1,414

 
$
2,365

 
$
1,537

Interest Rate Caps
 
(48
)
 
(843
)
 
438

 
(270
)
Interest Rate Swaps
 
917

 
(8,581
)
 
883

 
(4,951
)
 
 
1,240

 
(8,010
)
 
3,686

 
(3,684
)
Gain (loss) on settlement of investments, net
 
 
 
 
 
 
 
 
TBAs
 
3,857

 
(22,609
)
 
19,293

 
(29,410
)
Interest Rate Caps
 
130

 

 
(603
)
 
(562
)
Interest Rate Swaps
 
15,283

 
(5,125
)
 
37,943

 
(9,598
)
 
 
19,270

 
(27,734
)
 
56,633

 
(39,570
)
Total income (losses)
 
$
20,510

 
$
(35,744
)
 
$
60,319

 
$
(43,254
)


(A)
Represents unrealized gains (losses).