Derivative Financial Instruments

12 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 11—Derivative Financial Instruments

The Company’s activities involving derivative financial instruments are summarized below:

• The Company generates IRLCs in the normal course of business when it commits to purchase mortgage loans acquired for sale.

• The Company enters into CRT Agreements whereby it retains a portion of the credit risk relating to certain mortgage loans it sells into Fannie Mae guaranteed securitizations and an IO ownership interest in such mortgage loans. The fair values of the Recourse Obligations and the Company’s retention of the IO ownership interest are accounted for as a derivative financial instrument.

• The Company engages in interest rate risk management activities in an effort to reduce the variability of earnings caused by the effects of changes in interest rates on the fair value of certain of its assets and liabilities. To manage the price risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair value of the Company’s MBS, inventory of mortgage loans acquired for sale, mortgage loans held by VIE, ESS, IRLCs and MSRs.

The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.

The Company is exposed to price risk relative to the IRLCs it issues to correspondent sellers and to the mortgage loans it purchases as a result of issuing the IRLCs. The Company bears price risk from the time an IRLC is issued to a correspondent seller to the time the purchased mortgage loan is sold. The Company is exposed to loss if market mortgage interest rates increase, because market interest rate increases generally cause the fair value of the purchase commitment or mortgage loan acquired for sale to decrease.

The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative liabilities and related margin deposits recorded in Other assets on the consolidated balance sheets:

	December 31, 2016								December 31, 2015
			Fair value								Fair value
	Notional		Derivative			Derivative			Notional		Derivative			Derivative
Instrument	amount		assets			liabilities			amount		assets			liabilities
	(in thousands)
Derivatives not designated as hedging instruments:
Not subject to master netting arrangements:
Interest rate lock commitments		1,420,468	$	7,069		$	3,292			970,067	$	4,983		$	337
CRT Agreements		14,379,850		15,610			—			4,546,265		593			—
Subject to master netting arrangements:
Forward sale contracts		6,148,242		13,164			17,974			2,450,642		2,604			2,680
Forward purchase contracts		4,840,707		30,879			7,619			2,469,550		2,444			3,774
MBS put options		925,000		1,697			—			375,000		93			—
MBS call options		750,000		142			—			—		—			—
Swap futures		150,000		—			—			—		—			—
Eurodollar future sales contracts		1,351,000		—			—			1,755,000		—			—
Call options on interest rate futures		200,000		63			—			50,000		1,156			305
Put options on interest rate futures		550,000		2,469			—			1,600,000		1,512			39
Total derivative instruments before netting				71,093			28,885					13,385			7,135
Netting				(37,384	)		(19,312	)				(3,300	)		(3,978	)
			$	33,709		$	9,573				$	10,085		$	3,157
Margin deposits (received from) placed with    derivatives counterparties included in Other assets			$	(18,071	)						$	679

The following tables summarize the notional amount activity for derivative contracts used to hedge the Company’s MBS, mortgage loans acquired for sale, mortgage loans at fair value held in a VIE, IRLCs and MSRs and for derivatives arising from CRT Agreements. 

		Year ended December 31, 2016
		Balance,							Balance,
		beginning				Dispositions/			end
Instrument		of period		Additions		expirations			of period
	(in thousands)
CRT Agreements			4,546,265		11,190,933		(1,357,348	)		14,379,850
Forward sales contracts			2,450,642		99,737,855		(96,040,255	)		6,148,242
Forward purchase contracts			2,469,550		73,269,440		(70,898,283	)		4,840,707
MBS put options			375,000		12,400,000		(11,850,000	)		925,000
MBS call options			—		750,000		—			750,000
Swap futures			—		175,000		(25,000	)		150,000
Eurodollar future sale contracts			1,755,000		282,000		(686,000	)		1,351,000
Treasury future buy contracts			—		558,700		(558,700	)		—
Treasury future sale contracts			—		558,700		(558,700	)		—
Call options on interest rate futures			50,000		4,425,000		(4,275,000	)		200,000
Put options on interest rate futures			1,600,000		7,445,000		(8,495,000	)		550,000

	Year ended December 31, 2015
	Balance,							Balance,
	beginning				Dispositions/			end
Instrument	of period		Additions		expirations			of period
	(in thousands)
CRT Agreements		—		4,602,507		(56,242	)		4,546,265
Forward sales contracts		1,601,283		51,449,971		(50,600,612	)		2,450,642
Forward purchase contracts		1,100,700		37,757,703		(36,388,853	)		2,469,550
MBS put option		340,000		2,177,500		(2,142,500	)		375,000
MBS call option		—		140,000		(140,000	)		—
Eurodollar future sale contracts		7,426,000		385,000		(6,056,000	)		1,755,000
Eurodollar future purchase contracts		800,000		—		(800,000	)		—
Treasury future sale contracts		85,000		161,500		(246,500	)		—
Call options on interest rate futures		1,030,000		4,510,000		(5,490,000	)		50,000
Put options on interest rate futures		275,000		5,743,000		(4,418,000	)		1,600,000

	Year ended December 31, 2014
	Balance,							Balance,
	beginning				Dispositions/			end
Instrument	of period		Additions		expirations			of period
	(in thousands)
Forward sales contracts		3,588,027		45,904,253		(47,890,997	)		1,601,283
Forward purchase contracts		2,781,066		33,418,838		(35,099,204	)		1,100,700
MBS put option		55,000		2,087,500		(1,802,500	)		340,000
MBS call option		110,000		230,000		(340,000	)		—
Eurodollar future sale contracts		8,779,000		3,032,000		(4,385,000	)		7,426,000
Eurodollar future purchase contracts		—		4,087,000		(3,287,000	)		800,000
Treasury future sale contracts		105,000		482,600		(502,600	)		85,000
Treasury future purchase contracts		—		439,200		(439,200	)		—
Call options on interest rate futures		—		3,530,000		(2,500,000	)		1,030,000
Put options on interest rate futures		52,500		1,687,500		(1,465,000	)		275,000

Following are the net gains (losses) recognized by the Company on derivative financial instruments and the consolidated statements of income line items where such gains and losses are included:

		Year ended December 31,
Derivative activity	Income statement line	2016		2015			2014
		(in thousands)
CRT agreements	Net gain on investments	$	32,500	$	593		$	—
Interest rate lock commitments	Net gain on mortgage loans acquired for sale	$	87,836	$	37,725		$	73,693
Hedged item:
Interest rate lock commitments and    mortgage loans acquired for sale	Net gain on mortgage loans acquired for sale	$	50,274	$	(16,781	)	$	(68,679	)
Mortgage servicing rights	Net loan servicing fees	$	2,271	$	481		$	11,527
Fixed-rate assets and LIBOR-    indexed repurchase agreements	Net gain on investments	$	7,251	$	(19,353	)	$	(22,565	)