Freestanding Derivative Financial Instruments

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Freestanding Derivative Financial Instruments

Freestanding Derivative Financial Instruments

The Company enters into commitments to originate and purchase mortgage loans at interest rates that are determined prior to the funding or purchase of the loan. These commitments are referred to as IRLCs. IRLCs are considered freestanding derivatives and are recorded at fair value at inception. Changes in fair value subsequent to inception are based on the change in fair value of the underlying loan and changes in the probability that the loan will fund within the terms of the commitment.

The Company uses derivative financial instruments, primarily forward sales commitments, to manage exposure to interest rate risk and changes in the fair value of IRLCs and mortgage loans held for sale. The Company may also enter into commitments to purchase MBS as part of its overall hedging strategy. The Company has elected not to designate these freestanding derivatives as hedging instruments under GAAP.

The fair value of freestanding derivatives is recorded in other assets or payables and accrued liabilities on the consolidated balance sheets with changes in fair value included in net gains on sales of loans on the consolidated statements of comprehensive income (loss). Cash flows related to freestanding derivatives are included in operating activities on the consolidated statements of cash flows.

In connection with the forward sales commitments and MBS purchase commitments, the Company has margin agreements with its counterparties whereby both parties are required to post cash margin in the event the fair values of the derivative financial instruments meet or exceed established thresholds and minimum transfer amounts. This process mitigates counterparty credit risk. The right to receive cash margin placed by the Company with its counterparties is included in other assets and the obligation to return cash margin received by the Company from its counterparties is included within payables and accrued liabilities on the consolidated balance sheets. The Company has elected to record derivative assets and liabilities and related cash margin on a gross basis, even when a legally enforceable master netting arrangement exists between the Company and the derivative counterparty.

The derivative transactions described above are measured in terms of the notional amount. With the exception of IRLCs, the notional amount is generally not exchanged and is used only as a basis on which interest and other payments are determined.

The following table provides the total notional or contractual amounts and related fair values of derivative assets and liabilities not designated as hedging instruments as well as cash margin (in thousands):

	June 30, 2015						December 31, 2014
	Notional/ Contractual Amount		Fair Value				Notional/ Contractual Amount		Fair Value
			Derivative Assets		Derivative Liabilities				Derivative Assets		Derivative Liabilities
Interest rate lock commitments	$	3,746,480	$	50,750	$	4,791	$	2,825,924	$	60,400	$	263
Forward sales commitments	5,701,163		22,586		8,672		4,989,400		332		29,744
MBS purchase commitments	1,408,000		5,921		290		1,847,000		7,419		17
Total derivative instruments			$	79,257	$	13,753			$	68,151	$	30,024
Cash margin			$	—	$	30,032			$	14,664	$	2,780

Derivative positions subject to netting arrangements include all forward sale commitments, MBS purchase commitments, and cash margin, as reflected in the table above, and allow the Company to net settle asset and liability positions, as well as cash margin, with the same counterparty. After consideration of these netting arrangements and offsetting positions by counterparty, the total net settlement amount as it relates to these positions were asset positions of $2.2 million and less than $0.1 million, and liability positions of $12.7 million and $10.2 million, at June 30, 2015 and December 31, 2014, respectively. A master netting arrangement with one of the Company’s counterparties also allows for offsetting derivative positions and margin against amounts associated with the master repurchase agreement with that same counterparty. At June 30, 2015, the Company’s net derivative liability position with that counterparty of $0.6 million was comprised of a net derivative asset position of $0.4 million and cash margin received of $3.5 million, partially offset by $2.5 million of over-collateralized positions associated with the master repurchase agreement. Over collateralized positions on master repurchase agreements are not reflected as margin in the table above. Refer to Note 5 for a summary of the gains and losses on freestanding derivatives.