DERIVATIVES

As of March 31, 2015, 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 and linked transactions 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, 2015, New Residential held to-be-announced forward contract positions (“TBAs”) of $980.0 million 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’s net short position in TBAs of $980.0 million notional was entered into as an economic hedge in order to mitigate New Residential’s interest rate risk on certain residential mortgage loans and specified mortgage backed securities.

As of March 31, 2015, New Residential held TBA positions of $980.0 million 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. 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 a result of ASU No. 2014-11 (Note 2), New Residential has determined that, as of January 1, 2015, its linked transactions are accounted for as secured borrowings. As a result, $32.4 million carrying amount of derivatives was removed from the balance sheet and replaced with $116.8 million carrying amount of Non-Agency RMBS, $1.8 million carrying amount of Residential Mortgage Loans, Held-for-Investment, $86.0 million of Repurchase Agreements, and $0.2 million of other liabilities.

New Residential’s derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets as follows:



	Balance Sheet Location	March 31, 2015		December 31, 2014
Derivative assets
Real Estate Securities^(A)	Derivative assets	$	—	$	32,090
Non-Performing Loans^(A)	Derivative assets	—		312
Interest Rate Caps	Derivative assets	71		195
		$	71	$	32,597
Derivative liabilities
TBAs	Accrued expenses and other liabilities	$	8,539	$	4,985
Interest Rate Swaps	Accrued expenses and other liabilities	12,588		9,235
		$	21,127	$	14,220


(A)	For December 31, 2014, investments purchased from, and financed by, the selling counterparty that New Residential accounted for as linked transactions are reflected as derivatives. Upon the adoption of ASU 2014-11 on January 1, 2015, these transactions are accounted for as secured borrowings.

The following table summarizes notional amounts related to derivatives:



	March 31, 2015		December 31, 2014
Non-Performing Loans^(A)	$	—	$	2,931
Real Estate Securities^(B)	—		186,694
TBAs, short position^(C)	980,000		1,234,000
Interest Rate Caps^(D)	210,000		210,000
Interest Rate Swaps, short position^(E)	1,107,000		1,107,000


(A)	For December 31, 2014, represents the UPB of the underlying loans of the non-performing loan pools within linked transactions.


(B)	For December 31, 2014, represents the face amount of the real estate securities within linked transactions.


(C)	Represents the notional amount of Agency RMBS, classified as derivatives.


(D)	Caps LIBOR at 3.0%.


(E)	Receive LIBOR and pay a fixed rate.

The following table summarizes gains (losses) recorded in relation to derivatives:



	For the Three Months Ended March 31,
	2015			2014
Other income (loss)
Non-Performing Loans^(A)	$	—		$	671
TBAs	(3,554		)	362
Interest Rate Swaps	(3,352		)	(84		)
U.S.T. Short Positions	—			408
Interest Rate Caps	(124		)	—
	(7,030		)	1,357
Gain (loss) on settlement of investments
Real Estate Securities^(A)	—			—
TBAs	(16,033		)	43
Interest Rate Swaps	(6,557		)	(178		)
	(22,590		)	(135		)
Total gains (losses)	$	(29,620	)	$	1,222


(A)	For December 31, 2014, investments purchased from, and financed by, the selling counterparty that New Residential accounts for as linked transactions are reflected as derivatives. Upon the adoption of ASU 2014-11 on January 1, 2015, these transactions are accounted for as secured borrowings.