DERIVATIVES

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

New Residential enters into economic hedges including interest rate swaps and TBAs 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 September 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	September 30, 2021		December 31, 2020
Derivative assets

Interest rate lock commitments	Other assets	$	144,365	$	289,355

TBAs	Other assets	122,539		789
		$	266,904	$	290,144
Derivative liabilities
Interest rate swaps(A)	Accrued expenses and other liabilities	$	1,082	$	25
Interest rate lock commitments	Accrued expenses and other liabilities	19,983		281
Treasury futures and options on treasury futures	Accrued expenses and other liabilities	11,542		—
TBAs	Accrued expenses and other liabilities	22,159		119,456
		$	54,766	$	119,762

(A)Net of $60.0 million and $237.7 million of related variation margin balances as of September 30, 2021 and December 31, 2020, respectively.

The following table summarizes notional amounts related to derivatives:


	September 30, 2021		December 31, 2020

Interest rate swaps(A)	$	11,890,000	$	6,515,000
Interest rate lock commitments	16,611,634		15,031,345

TBAs, short position(B)	35,056,236		23,529,408
Treasury futures	655,400		—
Options on treasury futures	4,200,000		—

(A)Includes $11.9 billion notional of receive LIBOR/pay fixed of 1.47% and $0.0 billion notional of receive fixed of 0.00%/pay LIBOR with weighted average maturities of 34 months and 0 months, respectively, as of September 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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Servicing revenue, net(A)
TBAs	$	(14,156)	$	—	$	(14,355)	$	—
Treasury futures	(19,093)		—		(19,093)		—
Options on treasury futures	(8,116)		—		(8,116)		—
	(41,365)		—		(41,564)		—
Gain on originated mortgage loans, held-for-sale, net(A)
Interest rate lock commitments	(101,411)		82,019		(281,094)		206,073
TBAs	152,182		(6,013)		251,731		(23,428)
Forward loan sale commitments	—		—		—		27
	50,771		76,006		(29,363)		182,672
Change in fair value of investments(A)

Interest rate swaps	45,389		23,089		214,367		4,213

	45,389		23,089		214,367		4,213
Gain (loss) on settlement of investments, net(C)
Interest rate swaps	(36,314)		(23,192)		(105,386)		(62,039)
TBAs(B)	(37,664)		—		(47,527)		(71,060)
	(73,978)		(23,192)		(152,913)		(133,099)

Total income (loss)	$	(19,183)	$	75,903	$	(9,473)	$	53,786

(A)Represents unrealized gain (loss).

(B)Excludes $105.6 million loss and $68.8 million loss for the three months ended September 30, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net (Note 8). Excludes $48.5 million gain and $290.7 million loss for the nine months ended September 30, 2021 and 2020, respectively, included within Gain on Originated Mortgage Loans, Held-for-Sale, Net.

(C)Excludes $13.4 million loss and $0.0 million for the three months ended September 30, 2021 and 2020, respectively, included within Servicing revenue, net (Note 5). Excludes $11.1 million loss and $0.0 million for the nine months ended September 30, 2021 and 2020, respectively, included within Servicing revenue, net.