DERIVATIVES

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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.

New Residential may at times hold to-be-announced forward contract positions (“TBAs”) 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 may enter 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.

As of September 30, 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	September 30, 2020		December 31, 2019
Derivative assets
Interest rate swaps(A)	Other assets	$	—	$	155
Interest rate lock commitments	Other assets	246,247		41,346
TBAs	Other assets	9,249		—
		$	255,496	$	41,501
Derivative liabilities
Interest rate swaps(A)	Accrued expenses and other liabilities	$	263	$	—
Interest rate lock commitments	Accrued expenses and other liabilities	283		1,455
Forward loan sale commitments	Accrued expenses and other liabilities	—		27
TBAs	Accrued expenses and other liabilities	37,274		5,403
		$	37,820	$	6,885

(A)Net of $206.3 million and $171.8 million of related variation margin accounts as of September 30, 2020 and December 31, 2019, respectively.

The following table summarizes notional amounts related to derivatives:


	September 30, 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	12,412,095		4,043,935
Forward loan sale commitments	—		43,654
TBAs, short position(C)	15,254,283		5,048,000
TBAs, long position(C)	—		11,692,212

(A)As of September 30, 2020, caps LIBOR at 4.00% for $12.5 million of notional. The weighted average maturity of the interest rate caps as of September 30, 2020 was 2 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 31 months and 30 months, respectively, as of September 30, 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Change in fair value of derivative investments(A)
Interest rate caps	$	—	$	—	$	—	$	(3)
Interest rate swaps	23,089		42,306		4,213		(26,893)
TBAs	—		(917)		—		1,859
	23,089		41,389		4,213		(25,037)
Gain (loss) on settlement of investments, net
Interest rate swaps	(23,192)		(10,338)		(62,039)		(32,529)
TBAs(B)	—		(3,809)		(71,060)		(119,895)
	(23,192)		(14,147)		(133,099)		(152,424)
Gain on originated mortgage loans, held-for-sale, net(A)
Interest rate lock commitments	82,019		3,002		206,073		13,911
TBAs	(6,013)		14,389		(23,428)		9,208
Forward loan sale commitments	—		(272)		27		(70)
	76,006		17,119		182,672		23,049

Total income (losses)	$	75,903	$	44,361	$	53,786	$	(154,412)

(A)Represents unrealized gains (losses).

(B)Excludes $68.8 million and $290.7 million for the three and nine months ended September 30, 2020, respectively, and $32.1 million and $61.9 million for the three and nine months ended September 30, 2019, respectively, in loss on settlement included within gain on originated mortgage loans, held-for-sale, net (Note 8).