XML 28 R20.htm IDEA: XBRL DOCUMENT v3.24.3
Derivative and Credit Risk Transfer Strip Assets and Liabilities
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Credit Risk Transfer Strip Assets and Liabilities

Note 11—Derivative and Credit Risk Transfer Strip Assets and Liabilities

Derivative and credit risk transfer assets and liabilities are summarized below:

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

(in thousands)

 

Derivative assets

 

$

81,844

 

 

$

177,984

 

 

$

81,844

 

 

$

177,984

 

 

 

 

 

 

 

Derivative liabilities

 

$

2,676

 

 

$

4,689

 

Credit risk transfer strip liabilities

 

 

13,475

 

 

 

46,692

 

 

$

16,151

 

 

$

51,381

 

The Company records all derivative and CRT strip assets and liabilities at fair value and records changes in fair value in current period income.

Derivative Activities

The Company holds and issues derivative financial instruments in connection with its operating, investing and financing activities. Derivative financial instruments are created as a result of the Company’s operations and the Company also enters into derivative transactions as part of its interest rate risk management activities.

Derivative financial instruments created as a result of the Company’s operations include:

•
IRLCs that are created when the Company commits to purchase loans acquired for sale; and
•
Certain of the CRT arrangements whereby the Company retained recourse obligations relating to loans it sold into Fannie Mae guaranteed securitizations as part of the retention of IO ownership interests in such loans.

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 values of certain of its assets and liabilities. The Company bears price risk related to its mortgage production, servicing assets and MBS financing activities due to changes in market interest rates as discussed below:

•
The Company is exposed to losses if market mortgage interest rates increase, because market interest rate increases generally cause the fair values of MBS, IRLCs and loans acquired for sale to decrease.
•
The Company is exposed to losses if market mortgage interest rates decrease, because market interest rate decreases generally encourage increased mortgage refinancing activities, which causes the fair values of MSRs to decrease.

To manage the price risk resulting from these interest rate risks, the Company uses derivative financial instruments with the intention of moderating the risk that changes in market interest rates will result in unfavorable changes in the fair values of the

Company’s MBS, inventory of loans acquired for sale, IRLCs and MSRs. The Company does not designate and qualify any of its derivative financial instruments for hedge accounting.

Cash flows from derivative financial instruments relating to hedging of IRLCs and loans acquired for sale are included in Cash flows from operating activities in Sale to nonaffiliates and repayment of loans acquired for sale at fair value. Cash flows from derivative financial instruments relating to hedging of MSRs are included in Cash flows from investing activities.

Derivative Notional Amounts and Fair Value of Derivatives

The Company had the following derivative assets and liabilities recorded within Derivative assets and Derivative and credit risk transfer strip liabilities and related margin deposits on the consolidated balance sheets:

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

 

 

 

Fair value

 

 

 

 

 

Fair value

 

 

 

Notional

 

 

Derivative

 

 

Derivative

 

 

Notional

 

 

Derivative

 

 

Derivative

 

Instrument

 

amount (1)

 

 

assets

 

 

liabilities

 

 

amount (1)

 

 

assets

 

 

liabilities

 

 

(in thousands)

 

Hedging derivatives subject to master netting
   arrangements (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Call options on interest rate futures purchase
   contracts

 

 

4,700,000

 

 

$

12,844

 

 

$

—

 

 

 

2,315,000

 

 

$

41,712

 

 

$

2,005

 

Put options on interest rate futures purchase
   contracts

 

 

500,000

 

 

 

1,953

 

 

 

—

 

 

 

2,900,000

 

 

 

4,324

 

 

 

—

 

Call options on interest rate futures sell contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

500,000

 

 

 

—

 

 

 

1,328

 

Forward purchase contracts

 

 

3,194,957

 

 

 

635

 

 

 

7,452

 

 

 

2,789,324

 

 

 

15,905

 

 

 

490

 

Forward sale contracts

 

 

9,672,080

 

 

 

11,997

 

 

 

11,530

 

 

 

7,219,512

 

 

 

671

 

 

 

50,363

 

MBS call options

 

 

—

 

 

 

—

 

 

 

—

 

 

 

500,000

 

 

 

3,218

 

 

 

—

 

MBS put options

 

 

500,000

 

 

 

1,508

 

 

 

—

 

 

 

450,000

 

 

 

5

 

 

 

—

 

Bond futures

 

 

2,096,000

 

 

 

—

 

 

 

—

 

 

 

2,860,500

 

 

 

—

 

 

 

—

 

Swap futures

 

 

951,200

 

 

 

—

 

 

 

—

 

 

 

1,048,800

 

 

 

—

 

 

 

—

 

Other derivatives not subject to master netting
    arrangements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRT derivatives

 

 

5,071,449

 

 

 

29,690

 

 

 

—

 

 

 

5,437,551

 

 

 

16,160

 

 

 

—

 

Interest rate lock commitments

 

 

2,062,088

 

 

 

7,476

 

 

 

1,574

 

 

 

874,017

 

 

 

7,596

 

 

 

64

 

Total derivative instruments before netting

 

 

 

 

 

66,103

 

 

 

20,556

 

 

 

 

 

 

89,591

 

 

 

54,250

 

Netting

 

 

 

 

 

15,741

 

 

 

(17,880

)

 

 

 

 

 

88,393

 

 

 

(49,561

)

 

 

 

 

$

81,844

 

 

$

2,676

 

 

 

 

 

$

177,984

 

 

$

4,689

 

Margin deposits placed with derivative
   counterparties included in derivative
   balances above, net

 

 

 

 

$

33,620

 

 

 

 

 

 

 

 

$

137,955

 

 

 

 

Derivative assets pledged to secure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable secured by credit risk transfer
   and mortgage servicing assets

 

 

 

 

$

29,690

 

 

 

 

 

 

 

 

$

16,160

 

 

 

 

 

(1) Notional amounts provide an indication of the volume of the Company’s derivative activities.

(2) All hedging derivatives are interest rate derivatives that are used as economic hedges.

Netting of Financial Instruments

The Company has elected to net derivative asset and liability positions, and cash collateral placed with or received from its counterparties when such positions are subject to legally enforceable master netting arrangements and the Company intends to set off. The derivative financial instruments that are not subject to master netting arrangements are CRT derivatives and IRLCs. As of September 30, 2024 and December 31, 2023, the Company was not a party to any reverse repurchase agreements or securities lending transactions that are required to be disclosed in the following tables.

Derivative Assets, Financial Instruments and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amounts of derivative asset positions after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance qualifying for setoff accounting.

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

 

of assets

 

 

not offset in the

 

 

 

 

 

of assets

 

 

not offset in the

 

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

 

consolidated

 

 

 

 

 

Cash

 

 

 

 

 

consolidated

 

 

 

 

 

Cash

 

 

 

 

 

 

balance

 

 

Financial

 

 

collateral

 

 

Net

 

 

balance

 

 

Financial

 

 

collateral

 

 

Net

 

Counterparty

 

sheet

 

 

instruments

 

 

received

 

 

amount

 

 

sheet

 

 

instruments

 

 

received

 

 

amount

 

 

 

(in thousands)

 

CRT derivatives

 

$

29,690

 

 

$

—

 

 

$

—

 

 

$

29,690

 

 

$

16,160

 

 

$

—

 

 

$

—

 

 

$

16,160

 

Interest rate lock commitments

 

 

7,476

 

 

 

—

 

 

 

—

 

 

 

7,476

 

 

 

7,596

 

 

 

—

 

 

 

—

 

 

 

7,596

 

RJ O’Brien & Associates, LLC

 

 

14,797

 

 

 

—

 

 

 

—

 

 

 

14,797

 

 

 

42,703

 

 

 

—

 

 

 

—

 

 

 

42,703

 

Morgan Stanley & Co. LLC

 

 

10,699

 

 

 

—

 

 

 

—

 

 

 

10,699

 

 

 

79,825

 

 

 

—

 

 

 

—

 

 

 

79,825

 

Wells Fargo Securities, LLC

 

 

7,666

 

 

 

—

 

 

 

—

 

 

 

7,666

 

 

 

7,759

 

 

 

—

 

 

 

—

 

 

 

7,759

 

Bank of America, N.A.

 

 

4,436

 

 

 

—

 

 

 

—

 

 

 

4,436

 

 

 

3,418

 

 

 

—

 

 

 

—

 

 

 

3,418

 

Goldman Sachs & Co. LLC

 

 

2,163

 

 

 

—

 

 

 

—

 

 

 

2,163

 

 

 

18,701

 

 

 

—

 

 

 

—

 

 

 

18,701

 

J.P. Morgan Securities LLC

 

 

1,307

 

 

 

—

 

 

 

—

 

 

 

1,307

 

 

 

997

 

 

 

—

 

 

 

—

 

 

 

997

 

Citigroup Global Markets Inc.

 

 

1,160

 

 

 

—

 

 

 

—

 

 

 

1,160

 

 

 

503

 

 

 

—

 

 

 

—

 

 

 

503

 

Other

 

 

2,450

 

 

 

—

 

 

 

—

 

 

 

2,450

 

 

 

322

 

 

 

—

 

 

 

—

 

 

 

322

 

 

$

81,844

 

 

$

—

 

 

$

—

 

 

$

81,844

 

 

$

177,984

 

 

$

—

 

 

$

—

 

 

$

177,984

 

 

Derivative Liabilities, Financial Liabilities and Collateral Pledged by Counterparty

The following table summarizes by significant counterparty the amounts of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not meet the accounting guidance to qualify for setoff accounting. All assets sold under agreements to repurchase represent sufficient collateral with fair values that exceed the liability amounts recorded on the consolidated balance sheet.

 

 

September 30, 2024

 

 

December 31, 2023

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

Net amount

 

 

Gross amounts

 

 

 

 

 

 

of liabilities

 

 

not offset in the

 

 

 

 

 

of liabilities

 

 

not offset in the

 

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

presented

 

 

consolidated

 

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

in the

 

 

balance sheet

 

 

 

 

 

 

consolidated

 

 

Financial

 

 

Cash

 

 

 

 

 

consolidated

 

 

Financial

 

 

Cash

 

 

 

 

 

 

balance

 

 

instruments

 

 

collateral

 

 

Net

 

 

balance

 

 

instruments

 

 

collateral

 

 

Net

 

Counterparty

 

sheet

 

 

(1)

 

 

pledged

 

 

amount

 

 

sheet

 

 

(1)

 

 

pledged

 

 

amount

 

 

 

(in thousands)

 

Interest rate lock commitments

 

$

1,574

 

 

$

—

 

 

$

—

 

 

$

1,574

 

 

$

64

 

 

$

—

 

 

$

—

 

 

$

64

 

J.P. Morgan Securities LLC

 

 

1,631,801

 

 

 

(1,631,801

)

 

 

—

 

 

 

—

 

 

 

1,521,072

 

 

 

(1,521,072

)

 

 

—

 

 

 

—

 

Bank of America, N.A.

 

 

809,476

 

 

 

(809,476

)

 

 

—

 

 

 

—

 

 

 

785,756

 

 

 

(785,756

)

 

 

—

 

 

 

—

 

Wells Fargo Securities, LLC

 

 

803,927

 

 

 

(803,927

)

 

 

—

 

 

 

—

 

 

 

569,129

 

 

 

(569,129

)

 

 

—

 

 

 

—

 

Barclays Capital Inc.

 

 

578,798

 

 

 

(578,798

)

 

 

—

 

 

 

—

 

 

 

807,404

 

 

 

(803,641

)

 

 

—

 

 

 

3,763

 

Santander US Capital

 

 

362,604

 

 

 

(362,539

)

 

 

—

 

 

 

65

 

 

 

292,091

 

 

 

(292,091

)

 

 

—

 

 

 

—

 

Citigroup Global Markets Inc.

 

 

310,707

 

 

 

(310,707

)

 

 

—

 

 

 

—

 

 

 

147,093

 

 

 

(147,093

)

 

 

—

 

 

 

—

 

Daiwa Capital Markets

 

 

230,033

 

 

 

(230,033

)

 

 

—

 

 

 

—

 

 

 

340,975

 

 

 

(340,975

)

 

 

—

 

 

 

—

 

Goldman Sachs & Co. LLC

 

 

227,545

 

 

 

(227,545

)

 

 

—

 

 

 

—

 

 

 

145,007

 

 

 

(145,007

)

 

 

—

 

 

 

—

 

RBC Capital Markets, L.P.

 

 

212,560

 

 

 

(212,560

)

 

 

—

 

 

 

—

 

 

 

128,602

 

 

 

(128,602

)

 

 

—

 

 

 

—

 

Atlas Securitized Products, L.P.

 

 

206,873

 

 

 

(206,873

)

 

 

—

 

 

 

—

 

 

 

783,456

 

 

 

(783,456

)

 

 

—

 

 

 

—

 

Morgan Stanley & Co. LLC

 

 

201,862

 

 

 

(201,862

)

 

 

—

 

 

 

—

 

 

 

25,814

 

 

 

(25,814

)

 

 

—

 

 

 

—

 

Mizuho Financial Group

 

 

98,686

 

 

 

(98,121

)

 

 

—

 

 

 

565

 

 

 

67,637

 

 

 

(67,110

)

 

 

—

 

 

 

527

 

BNP Paribas

 

 

77,277

 

 

 

(77,277

)

 

 

—

 

 

 

—

 

 

 

10,121

 

 

 

(10,121

)

 

 

—

 

 

 

—

 

Nomura Holdings America, Inc

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8,135

 

 

 

(7,940

)

 

 

—

 

 

 

195

 

Other

 

 

472

 

 

 

—

 

 

 

—

 

 

 

472

 

 

 

140

 

 

 

—

 

 

 

—

 

 

 

140

 

 

$

5,754,195

 

 

$

(5,751,519

)

 

$

—

 

 

$

2,676

 

 

$

5,632,496

 

 

$

(5,627,807

)

 

$

—

 

 

$

4,689

 

 

(1)
Amounts represent the UPB of Assets sold under agreements to repurchase.

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:

 

 

 

 

Quarter ended September 30,

 

 

Nine months ended September 30,

 

Derivative activity

 

Consolidated statements of income line

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

 

 

(in thousands)

 

Interest rate lock commitments

 

Net gains on loans acquired for sale (1)

 

$

4,349

 

 

$

(2,050

)

 

$

(1,631

)

 

$

(2,870

)

CRT derivatives

 

Net gains (losses) on investments
  and financings

 

$

8,735

 

 

$

13,164

 

 

$

23,964

 

 

$

39,123

 

Hedged item:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets sold under agreements
   to repurchase

 

Net gains (losses) on investments
  and financings

 

$

—

 

 

$

—

 

 

$

20,098

 

 

$

—

 

Interest rate lock
   commitments and
   loans acquired for sale

 

Net gains on loans acquired for sale

 

$

(45,471

)

 

$

24,092

 

 

$

(35,698

)

 

$

22,742

 

Mortgage servicing rights

 

Net loan servicing fees

 

$

(67,220

)

 

$

(50,689

)

 

$

(175,399

)

 

$

(81,584

)

 

(1)
Represents net change in fair value of IRLCs from the beginning to the end of the reporting period. Amounts recognized at the date of commitment and fair value changes recognized during the period until purchase of the underlying loan or cancellation of the commitment are shown in the rollforwards of IRLCs for the period in Note 7 – Fair Value – Financial Statement Items Measured at Fair Value on a Recurring Basis.