Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.5.0.2
DERIVATIVES
9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
 
As of September 30, 2016, 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, 2016, New Residential held to-be-announced forward contract positions (“TBAs”) of $2.6 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 separately held TBAs of $1.4 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 setoff 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 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
 
September 30, 2016
 
December 31, 2015
Derivative assets
 
 
 
 
 
Interest Rate Caps
Other assets
 
$
2,088

 
$
2,689

 
 
 
$
2,088

 
$
2,689

Derivative liabilities
 
 
 
 
 
TBAs
Accrued expenses and other liabilities
 
$
3,461

 
$
2,058

Interest Rate Swaps
Accrued expenses and other liabilities
 
20,624

 
11,385

 
 
 
$
24,085

 
$
13,443

 
The following table summarizes notional amounts related to derivatives:
 
September 30, 2016
 
December 31, 2015
TBAs, short position(A)
$
2,645,300

 
$
1,450,000

TBAs, long position(A)
1,441,000

 
750,000

Interest Rate Caps(B)
2,435,000

 
3,400,000

Interest Rate Swaps, short positions(C)
2,044,000

 
2,444,000


(A)
Represents the notional amount of Agency RMBS, classified as derivatives.
(B)
Caps LIBOR at 0.50% for $950.0 million of notional, at 0.75% for $1,150.0 million of notional, at 2.00% for $185.0 million of notional, and at 4.00% for $150.0 million of notional. The weighted average maturity of the interest rate caps as of September 30, 2016 was 12 months.
(C)
Receive LIBOR and pay a fixed rate. The weighted average maturity of the interest rate swaps as of September 30, 2016 was 19 months and the weighted average fixed pay rate was 1.28%.

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,
 
 
2016
 
2015
 
2016
 
2015
Other income (loss), net(A)
 
 
 
 
 
 
 
 
TBAs
 
$
10,502

 
$
2,054

 
$
(22
)
 
$
254

Interest Rate Swaps
 
15,997

 
(10,221
)
 
(4,799
)
 
(15,310
)
Interest Rate Caps
 
463

 
(999
)
 
(3,683
)
 
(2,369
)
 
 
26,962

 
(9,166
)
 
(8,504
)
 
(17,425
)
Gain (loss) on settlement of investments, net
 
 
 
 
 
 
 
 
TBAs
 
(15,922
)
 
(33,398
)
 
(55,159
)
 
(36,902
)
Interest Rate Caps
 

 
(545
)
 
(1,124
)
 
(545
)
Interest Rate Swaps
 
(8,917
)
 
(10,536
)
 
(14,024
)
 
(15,853
)
 
 
(24,839
)
 
(44,479
)
 
(70,307
)
 
(53,300
)
Total income (losses)
 
$
2,123

 
$
(53,645
)
 
$
(78,811
)
 
$
(70,725
)


(A)
Represents unrealized gains (losses).