Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.20.1
DERIVATIVES
3 Months Ended
Mar. 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.

As of March 31, 2020, 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 March 31, 2020, 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.

New Residential’s derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:
 
Balance Sheet Location
 
March 31, 2020
 
December 31, 2019
Derivative assets
 
 
 
 
 
Interest Rate Swaps(A)
Other assets
 
$
48

 
$
155

Interest Rate Lock Commitments
Other assets
 
132,568

 
41,346

 
 
 
$
132,616

 
$
41,501

Derivative liabilities
 
 
 
 
 
Interest Rate Lock Commitments
Accrued expenses and other liabilities
 
$
1,428

 
$
1,455

Forward Loan Sale Commitments
Accrued expenses and other liabilities
 

 
27

TBAs
Accrued expenses and other liabilities
 
158,925

 
5,403

 
 
 
$
160,353

 
$
6,885


(A)
Net of $245.4 million and $171.8 million of related variation margin accounts as of March 31, 2020 and December 31, 2019, respectively.

The following table summarizes notional amounts related to derivatives:
 
March 31, 2020
 
December 31, 2019
Interest Rate Caps(A)
$
12,500

 
$
12,500

Interest Rate Swaps(B)
9,070,000

 
4,900,000

Interest Rate Lock Commitments
5,861,166

 
4,043,935

Forward Loan Sale Commitments

 
43,654

TBAs, short position(C)
4,245,000

 
5,048,000

TBAs, long position(C)
13,705,341

 
11,692,212


(A)
As of March 31, 2020, caps LIBOR at 4.00% for $12.5 million of notional. The weighted average maturity of the interest rate caps as of March 31, 2020 was 8 months.
(B)
Includes $4.4 billion notional of Receive LIBOR/Pay Fixed of 2.96% and $4.7 billion notional of Receive Fixed of 0.80%/Pay LIBOR with weighted average maturities of 37 months and 36 months, respectively, as of March 31, 2020. Includes $4.0 billion notional of Receive LIBOR/Pay Fixed of 3.21% and $0.9 billion notional of Receive Fixed of 1.89%/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:
 
 
For the  
 Three Months Ended 
 March 31,
 
 
2020
 
2019
Change in fair value of derivative investments(A)
 
 
 
 
Interest Rate Caps
 
$

 
$
2,776

Interest Rate Swaps
 
(39,982
)
 
(3
)
Unrealized gains (losses) on Interest Rate Lock Commitments
 

 
(28,533
)
 
 
(39,982
)
 
(25,760
)
Gain (loss) on settlement of investments, net
 
 
 
 
Interest Rate Swaps
 
(13,652
)
 
(16,378
)
TBAs(B)
 
(71,060
)
 
(76,698
)
 
 
(84,712
)
 
(93,076
)
Gain on originated mortgage loans, held-for-sale, net(A)
 
 
 
 
Interest Rate Lock Commitments
 
91,249

 
3,208

TBAs
 
(139,351
)
 
(1,194
)
Forward Loan Sale Commitments
 
27

 
(21
)
 
 
(48,075
)
 
1,993

 
 
 
 
 
Total income (losses)
 
$
(172,769
)
 
$
(116,843
)


(A)
Represents unrealized gains (losses).
(B)
Excludes $46.3 million and $11.4 million in loss on settlement included within gain on originated mortgage loans, held-for-sale, net (Note 8), for the three months ended March 31, 2020 and 2019, respectively.