Derivative Activities

12 Months Ended

Dec. 31, 2018

Derivative Activities

Derivative Activities

Note 8—Derivative Activities

Derivative Notional Amounts and Fair Value of Derivatives

The Company had the following derivative financial instruments recorded on its consolidated balance sheets:

	December 31, 2018					December 31, 2017
		Fair value					Fair value
	Notional	Derivative		Derivative		Notional	Derivative		Derivative
Instrument	amount	assets		liabilities		amount	assets		liabilities
	(in thousands)
Derivatives not designated as hedging instruments:
Not subject to master netting arrangements:
Interest rate lock commitments	2,805,400	$	50,507	$	1,169	3,654,955	$	60,012	$	1,740
Repurchase agreement derivatives			26,770		—			10,656		—
Used for hedging purposes:
Forward purchase contracts	6,657,026		35,916		215	4,920,883		4,288		1,272
Forward sales contracts	6,890,046		437		26,762	5,204,796		2,101		7,031
MBS put options	4,635,000		720		—	4,925,000		3,481		—
MBS call options	1,450,000		2,135		—	—		—		—
Put options on interest rate futures purchase contracts	3,085,000		866		—	2,125,000		3,570		—
Call options on interest rate futures purchase contracts	1,512,500		5,965		—	100,000		938		—
Treasury futures purchase contracts	835,000		—		—	100,000		—		—
Treasury futures sale contracts	1,450,000		—		—	—		—		—
Interest rate swap futures purchase contracts	625,000		—		—	1,400,000		—		—
Total derivatives before netting			123,316		28,146			85,046		10,043
Netting			(26,969)		(25,082)			(6,867)		(4,247)
		$	96,347	$	3,064		$	78,179	$	5,796
Deposits placed with derivative counterparties		$	1,887				$	2,620

The following table summarizes notional amount activity for derivative contracts used in the Company’s hedging activities:

	Year ended December 31, 2018
	Amount			Amount
	beginning of		Dispositions/	end of
Instrument	year	Additions	expirations	year
	(in thousands)
Forward purchase contracts	4,920,883	184,780,152	(183,044,009)	6,657,026
Forward sale contracts	5,204,796	230,735,936	(229,050,686)	6,890,046
MBS put options	4,925,000	31,085,000	(31,375,000)	4,635,000
MBS call options	—	14,325,000	(12,875,000)	1,450,000
Put options on interest rate futures purchase contracts	2,125,000	20,559,800	(19,599,800)	3,085,000
Call options on interest rate futures purchase contracts	100,000	4,387,500	(2,975,000)	1,512,500
Put options on interest rate futures sale contracts	—	20,474,800	(20,474,800)	—
Call options on interest rate futures sale contracts	—	2,100,000	(2,100,000)	—
Treasury futures purchase contracts	100,000	9,837,500	(9,102,500)	835,000
Treasury futures sale contracts	—	11,213,800	(9,763,800)	1,450,000
Interest rate swap futures purchase contracts	1,400,000	1,510,000	(2,285,000)	625,000
Interest rate swap futures sales contracts	—	2,285,000	(2,285,000)	—

	Year ended December 31, 2017
	Amount			Amount
	beginning of		Dispositions/	end of
Instrument	year	Additions	expirations	year
	(in thousands)
Forward purchase contracts	12,746,191	181,761,564	(189,586,872)	4,920,883
Forward sale contracts	16,577,942	226,000,107	(237,373,253)	5,204,796
MBS put options	1,175,000	25,050,000	(21,300,000)	4,925,000
MBS call options	1,600,000	17,700,000	(19,300,000)	—
Put options on interest rate futures purchase contracts	1,125,000	11,360,000	(10,360,000)	2,125,000
Call options on interest rate futures purchase contracts	900,000	1,939,300	(2,739,300)	100,000
Put options on interest rate futures sale contracts	—	10,010,000	(10,010,000)	—
Call options on interest rate futures sale contracts	—	2,739,300	(2,739,300)	—
Treasury futures purchase contracts	—	544,900	(444,900)	100,000
Treasury futures sale contracts	—	444,900	(444,900)	—
Interest rate swap futures purchase contracts	200,000	2,100,000	(900,000)	1,400,000
Interest rate swap futures sales contracts	—	900,000	(900,000)	—

	Year ended December 31, 2016
	Amount			Amount
	beginning of		Dispositions/	end of
Instrument	year	Additions	expirations	year
	(in thousands)
Forward purchase contracts	5,254,293	210,412,697	(202,920,799)	12,746,191
Forward sale contracts	6,230,811	262,202,884	(251,855,753)	16,577,942
MBS put options	1,275,000	19,225,000	(19,325,000)	1,175,000
MBS call options	—	1,600,000	—	1,600,000
Put options on interest rate futures purchase contracts	1,650,000	15,331,000	(15,856,000)	1,125,000
Call options on interest rate futures purchase contracts	600,000	5,687,500	(5,387,500)	900,000
Put options on interest rate futures sale contracts	—	9,436,000	(9,436,000)	—
Call options on interest rate futures sale contracts	—	550,000	(550,000)	—
Treasury futures purchase contracts	—	585,800	(585,800)	—
Treasury futures sale contracts	—	585,800	(585,800)	—
Interest rate swap futures purchase contracts	—	400,000	(200,000)	200,000
Interest rate swap futures sales contracts	—	200,000	(200,000)	—

Derivative Balances and Netting of Financial Instruments

The Company has elected to present net derivative asset and liability positions, and cash collateral obtained from (or posted to) its counterparties when subject to a master netting arrangement that is legally enforceable on all counterparties in the event of default. The derivatives that are not subject to a master netting arrangement are IRLCs and repurchase agreement derivatives.

Offsetting of Derivative Assets

Following are summaries of derivative assets and related netting amounts.

	December 31, 2018						December 31, 2017
	Gross		Gross amount		Net amount		Gross		Gross amount		Net amount
	amount of		offset in the		of assets in the		amount of		offset in the		of assets in the
	recognized		consolidated		consolidated		recognized		consolidated		consolidated
	assets		balance sheet		balance sheet		assets		balance sheet		balance sheet
	(in thousands)
Derivatives not subject to master netting arrangements:
Interest rate lock commitments	$	50,507	$	—	$	50,507	$	60,012	$	—	$	60,012
Repurchase agreement derivatives		26,770		—		26,770		10,656		—		10,656
		77,277		—		77,277		70,668		—		70,668
Derivatives subject to master netting arrangements:
Forward purchase contracts		35,916		—		35,916		4,288		—		4,288
Forward sale contracts		437		—		437		2,101		—		2,101
MBS put options		720		—		720		3,481		—		3,481
MBS call options		2,135		—		2,135		—		—		—
Put options on interest rate futures purchase contracts		866		—		866		3,570		—		3,570
Call options on interest rate futures purchase contracts		5,965		—		5,965		938		—		938
Netting				(26,969)		(26,969)		—		(6,867)		(6,867)
		46,039		(26,969)		19,070		14,378		(6,867)		7,511
	$	123,316	$	(26,969)	$	96,347	$	85,046	$	(6,867)	$	78,179

Derivative Assets, Financial Instruments, and Cash Collateral Held by Counterparty

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

	December 31, 2018								December 31, 2017
			Gross amount not								Gross amount not
			offset in the								offset in the
			consolidated								consolidated
	Net amount		balance sheet						Net amount		balance sheet
	of assets in the				Cash				of assets in the				Cash
	consolidated		Financial		collateral		Net		consolidated		Financial		collateral		Net
	balance sheet		instruments		received		amount		balance sheet		instruments		received		amount
	(in thousands)
Interest rate lock commitments	$	50,507	$	—	$	—	$	50,507	$	60,012	$	—	$	—	$	60,012
Deutsche Bank		26,770		—		—		26,770		10,656		—		—		10,656
RJ O'Brien		6,831		—		—		6,831		4,508		—		—		4,508
Wells Fargo Bank, N.A.		3,707		—		—		3,707		—		—		—		—
Bank of America, N.A.		2,781		—		—		2,781		—		—		—		—
Citibank, N.A.		2,488		—		—		2,488		472		—		—		472
JPMorgan Chase Bank, N.A.		1,399		—		—		1,399		267		—		—		267
Federal National Mortgage Association		456		—		—		456		1,092		—		—		1,092
Others		1,408		—		—		1,408		1,172		—		—		1,172
	$	96,347	$	—	$	—	$	96,347	$	78,179	$	—	$	—	$	78,179

Offsetting of Derivative Liabilities and Financial Liabilities

Following is a summary of net derivative liabilities and assets sold under agreements to repurchase and related netting amounts. Assets sold under agreements to repurchase do not qualify for netting.

	December 31, 2018						December 31, 2017
					Net						Net
					amount						amount
	Gross		Gross amount		of liabilities		Gross		Gross amount		of liabilities
	amount of		offset in the		in the		amount of		offset in the		in the
	recognized		consolidated		consolidated		recognized		consolidated		consolidated
	liabilities		balance sheet		balance sheet		liabilities		balance sheet		balance sheet
	(in thousands)
Derivatives not subject to master netting arrangements – Interest rate lock commitments	$	1,169	$	—	$	1,169	$	1,740	$	—	$	1,740
Derivatives subject to a master netting arrangement:
Forward purchase contracts		215		—		215		1,272		—		1,272
Forward sale contracts		26,762		—		26,762		7,031		—		7,031
Netting		—		(25,082)		(25,082)		—		(4,247)		(4,247)
		26,977		(25,082)		1,895		8,303		(4,247)		4,056
Total derivatives		28,146		(25,082)		3,064		10,043		(4,247)		5,796
Assets sold under agreements to repurchase:
Amount outstanding		1,935,200		—		1,935,200		2,380,866		—		2,380,866
Unamortized premiums and debt issuance costs, net		(1,341)		—		(1,341)		672		—		672
		1,933,859		—		1,933,859		2,381,538		—		2,381,538
	$	1,962,005	$	(25,082)	$	1,936,923	$	2,391,581	$	(4,247)	$	2,387,334

Derivative Liabilities, Financial Instruments, and Collateral Held by Counterparty

The following table summarizes by significant counterparty the amount of derivative liabilities and assets sold under agreements to repurchase after considering master netting arrangements and financial instruments or cash pledged that do not qualify under the accounting guidance for netting. All assets sold under agreements to repurchase are secured by sufficient collateral or have fair value that exceeds the liability amount recorded on the consolidated balance sheets.

	December 31, 2018								December 31, 2017
			Gross amounts								Gross amounts
			not offset in the								not offset in the
	Net amount		consolidated						Net amount		consolidated
	of liabilities		balance sheet						of liabilities		balance sheet
	in the				Cash				in the				Cash
	consolidated		Financial		collateral		Net		consolidated		Financial		collateral		Net
	balance sheet		instruments		pledged		amount		balance sheet		instruments		pledged		amount
	(in thousands)
Interest rate lock commitments	$	1,169	$	—	$	—	$	1,169	$	1,740	$	—	$	—	$	1,740
Credit Suisse First Boston Mortgage Capital LLC		691,030		(690,766)		—		264		1,010,562		(1,010,320)		—		242
Deutsche Bank		741,978		(741,978)		—		—		593,864		(593,864)		—		—
Bank of America, N.A.		170,820		(170,820)		—		—		406,787		(406,355)		—		432
BNP Paribas		149,675		(149,482)		—		193		87,753		(87,753)		—		—
Morgan Stanley Bank, N.A.		77,687		(77,687)		—		—		139,491		(138,983)		—		508
JPMorgan Chase Bank, N.A.		54,326		(54,326)		—		—		90,442		(90,442)		—		—
Royal Bank of Canada		35,181		(35,181)		—		—		24,835		(23,752)		—		1,083
Citibank, N.A.		14,960		(14,960)		—		—		23,010		(23,010)		—		—
Barclays Capital		—		—		—		—		6,387		(6,387)		—		—
Others		1,438		—		—		1,438		1,791		—		—		1,791
	$	1,938,264	$	(1,935,200)	$	—	$	3,064	$	2,386,662	$	(2,380,866)	$	—	$	5,796

Following are the gains (losses) recognized by the Company on derivative financial instruments and the income statement line items where such gains and losses are included:

		Year ended December 31,
Derivative activity	Income statement line	2018		2017		2016
		(in thousands)
Interest rate lock commitments	Net gains on mortgage loans held for sale at fair value	$	(8,934)	$	(1,120)	$	15,618
Repurchase agreement derivatives	Interest expense	$	(1,704)	$	(330)	$	—
Hedged item:
Interest rate lock commitments and mortgage loans held for sale	Net gains on mortgage loans held for sale at fair value	$	81,522	$	(21,255)	$	20,619
Mortgage servicing rights	Net mortgage loan servicing fees–Amortization, impairment and change in fair value of mortgage servicing rights and mortgage servicing liabilities	$	(121,045)	$	(37,855)	$	26,405