DERIVATIVES

6 Months Ended

Jun. 30, 2021

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 MSRs. 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. Changes in the value of derivatives designed to protect against mortgage backed securities and MSR fair value fluctuations, or hedging gains and losses, are reflected in the tables below.

As of June 30, 2021, 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.

Derivatives are recorded at fair value on the Consolidated Balance Sheets as follows:


	Balance Sheet Location	June 30, 2021		December 31, 2020
Derivative assets
Interest rate swaps(A)	Other assets	$	—	$	—
Interest rate lock commitments	Other assets	112,314		289,355
Forward Loan Sale Commitments	Other assets	—		—
TBAs	Other assets	13,318		789
		$	125,632	$	290,144
Derivative liabilities
Interest rate swaps(A)	Accrued expenses and other liabilities	$	3,919	$	25
Interest rate lock commitments	Accrued expenses and other liabilities	2,924		281

TBAs	Accrued expenses and other liabilities	30,153		119,456
		$	36,996	$	119,762

(A)Net of $188.0 million and $237.7 million of related variation margin balances as of June 30, 2021 and December 31, 2020, respectively.

The following table summarizes notional amounts related to derivatives:


	June 30, 2021		December 31, 2020

Interest rate swaps(A)	$	10,045,000	$	6,515,000
Interest rate lock commitments	10,828,734		15,031,345

TBAs, short position(B)	23,334,246		23,529,408

(A)Includes $10.0 billion notional of receive LIBOR/pay fixed of 1.46% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 32 months and 0 months, respectively, as of June 30, 2021. Includes $6.5 billion notional of receive LIBOR/pay fixed of 2.21% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 47 months and 0 months, respectively, as of December 31, 2020.

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

The following table summarizes gain (loss) on derivatives and the related location on the Consolidated Statements of Income:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Servicing revenue, net
TBAs	$	8,624	$	—	$	(199)	$	—
	8,624		—		(199)		—
Gain on originated mortgage loans, held-for-sale, net(A)
Interest rate lock commitments	55,299		32,806		(179,683)		124,055
TBAs	(308,466)		121,935		99,549		(17,416)
Forward loan sale commitments	—		—		—		27
	(253,167)		154,741		(80,134)		106,666
Change in fair value of derivative investments(A)

Interest rate swaps	(37,227)		21,106		168,978		(18,876)

	(37,227)		21,106		168,978		(18,876)
Gain (loss) on settlement of investments, net
Interest rate swaps	(35,246)		(25,195)		(69,072)		(38,847)
TBAs(B)	(14,010)		—		(7,557)		(71,060)
	(49,256)		(25,195)		(76,629)		(109,907)

Total income (loss)	$	(331,026)	$	150,652	$	12,016	$	(22,117)

(A)Represents unrealized gain (loss).

(B)Excludes $114.0 million gain and $175.6 million loss for the three months ended June 30, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net (Note 8). Excludes $154.1 million gain and $221.9 million loss for the six months ended June 30, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net.