Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.10.0.1
DERIVATIVES
9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
 
As of September 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 September 30, 2018, New Residential held to-be-announced forward contract positions (“TBAs”) of $5.5 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 September 30, 2018, New Residential separately held TBAs of $4.2 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.

In addition, as of September 30, 2018, New Residential held Interest rate lock commitments (“IRLCs”) and forward loan sale and securities delivery commitments of $572.7 million and $28.4 million, respectively. IRLCs represent a commitment to a particular interest rate provided the borrower is able to close the loan within a specified period and mortgage loan sale commitments represent a commitment to sell specific mortgage loans at prices which are fixed as of the forward commitment date.

New Residential’s derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:
 
Balance Sheet Location
 
September 30, 2018
 
December 31, 2017
Derivative assets
 
 
 
 
 
Interest Rate Caps
Other assets
 
$
8

 
$
2,423

Interest Rate Lock Commitments
Other assets
 
8,357

 

Forward Loan Sale Commitments
Other assets
 
305

 

TBAs
Other assets
 
18,542

 

 
 
 
$
27,212

 
$
2,423

Derivative liabilities
 
 
 
 
 
Interest Rate Swaps(A)
Accrued expenses and other liabilities
 
$
2,294

 
$

TBAs
Accrued expenses and other liabilities
 

 
697

 
 
 
$
2,294

 
$
697


(A)
Net of $6.8 million of related variation margin accounts as of September 30, 2018. As of December 31, 2017, no variation margin accounts existed.
 
The following table summarizes notional amounts related to derivatives:
 
September 30, 2018
 
December 31, 2017
Interest Rate Caps(A)
$
162,500

 
$
772,500

Interest Rate Swaps(B)
4,242,000

 

Interest Rate Lock Commitments
572,654

 

Forward Loan Sale Commitments
28,402

 

TBAs, short position(C)
5,466,100

 
3,101,100

TBAs, long position(C)
4,207,800

 
1,014,000


(A)
As of September 30, 2018, caps LIBOR at 4.00% for $162.5 million of notional. The weighted average maturity of the interest rate caps as of September 30, 2018 was 4 months.
(B)
Receive LIBOR and pay a fixed rate. The weighted average maturity of the interest rate swaps as of September 30, 2018 was 50 months and the weighted average fixed pay rate was 2.93%.
(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,
 
 
2018
 
2017
 
2018
 
2017
Other income (loss), net(A)
 
 
 
 
 
 
 
 
Interest Rate Caps
 
$
(2
)
 
$
(1,083
)
 
$
436

 
$
(1,353
)
Interest Rate Swaps
 
18,785

 
5,300

 
19,668

 
349

Unrealized gains(losses) on Interest Rate Lock Commitments
 
(2,247
)
 

 
(2,247
)
 

Forward Loan Sale Commitments
 
(17
)
 

 
(17
)
 

TBAs
 
$
7,780

 
$
(657
)
 
$
10,145

 
$
880

 
 
24,299

 
3,560

 
27,985

 
(124
)
Gain (loss) on settlement of investments, net
 
 
 
 
 
 
 
 
Interest Rate Caps
 

 
322

 
(603
)
 
(240
)
Interest Rate Swaps
 
(656
)
 
(2,499
)
 
37,287

 
(12,097
)
TBAs(B)
 
20,115

 
(16,579
)
 
39,408

 
(45,989
)
 
 
19,459

 
(18,756
)
 
76,092

 
(58,326
)
 
 
 
 
 
 
 
 
 
Total income (losses)
 
$
43,758

 
$
(15,196
)
 
$
104,077

 
$
(58,450
)


(A)
Represents unrealized gains (losses).
(B)
Excludes $2.8 million in loss on settlement included within gain on sale of originated mortgage loans, net (Note 8).