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, 2019					December 31, 2018
		Fair value					Fair value
	Notional	Derivative		Derivative		Notional	Derivative		Derivative
Instrument	amount	assets		liabilities		amount	assets		liabilities
	(in thousands)
Not subject to master netting arrangements:
Interest rate lock commitments	7,122,316	$	138,511	$	1,861	2,805,400	$	50,507	$	1,169
Repurchase agreement derivatives			8,187		—			26,770		—
Used for hedging purposes:
Forward purchase contracts	13,618,361		12,364		19,040	6,657,026		35,916		215
Forward sales contracts	16,220,526		17,097		18,045	6,890,046		437		26,762
MBS put options	6,100,000		3,415		—	4,635,000		720		—
MBS call options	—		—		—	1,450,000		2,135		—
Swaptions	1,750,000		2,409		—	—		—		—
Put options on interest rate futures purchase contracts	2,250,000		3,945		—	3,085,000		866		—
Call options on interest rate futures purchase contracts	750,000		1,469		—	1,512,500		5,965		—
Treasury futures purchase contracts	1,276,000		—		—	835,000		—		—
Treasury futures sale contracts	1,010,000		—		—	1,450,000		—		—
Interest rate swap futures purchase contracts	3,210,000		—		—	625,000		—		—
Total derivatives before netting			187,397		38,946			123,316		28,146
Netting			(27,711)		(16,616)			(26,969)		(25,082)
		$	159,686	$	22,330		$	96,347	$	3,064
Collateral placed with (received from) derivative counterparties		$	(11,095)				$	(1,887)

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


	Notional amounts, year ended December 31, 2019
	Beginning of		Dispositions/	End of
Instrument	year	Additions	expirations	year
	(in thousands)
Forward purchase contracts	6,657,026	331,273,011	(324,311,676)	13,618,361
Forward sale contracts	6,890,046	395,584,533	(386,254,053)	16,220,526
MBS put options	4,635,000	97,035,000	(95,570,000)	6,100,000
MBS call options	1,450,000	6,750,000	(8,200,000)	—
Put options on interest rate futures purchase contracts	3,085,000	23,322,500	(24,157,500)	2,250,000
Call options on interest rate futures purchase contracts	1,512,500	14,377,800	(15,140,300)	750,000
Swaptions	—	1,750,000	—	1,750,000
Put options on interest rate futures sale contracts	—	33,297,800	(33,297,800)	—
Call options on interest rate futures sale contracts	—	5,937,500	(5,937,500)	—
Treasury futures purchase contracts	835,000	14,344,400	(13,903,400)	1,276,000
Treasury futures sale contracts	1,450,000	13,463,400	(13,903,400)	1,010,000
Interest rate swap futures purchase contracts	625,000	5,300,000	(2,715,000)	3,210,000
Interest rate swap futures sales contracts	—	2,715,000	(2,715,000)	—


	Notional amounts, year ended December 31, 2018
	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)	—


	Notional amounts, year ended December 31, 2017
	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 sale contracts	—	900,000	(900,000)	—

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, 2019						December 31, 2018
	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	$	138,511	$	—	$	138,511	$	50,507	$	—	$	50,507
Repurchase agreement derivatives		8,187		—		8,187		26,770		—		26,770
		146,698		—		146,698		77,277		—		77,277
Derivatives subject to master netting arrangements:
Forward purchase contracts		12,364		—		12,364		35,916		—		35,916
Forward sale contracts		17,097		—		17,097		437		—		437
MBS put options		3,415		—		3,415		720		—		720
MBS call options		—		—		—		2,135		—		2,135
Swaptions		2,409		—		2,409
Put options on interest rate futures purchase contracts		3,945		—		3,945		866		—		866
Call options on interest rate futures purchase contracts		1,469		—		1,469		5,965		—		5,965
Netting		—		(27,711)		(27,711)		—		(26,969)		(26,969)
		40,699		(27,711)		12,988		46,039		(26,969)		19,070
	$	187,397	$	(27,711)	$	159,686	$	123,316	$	(26,969)	$	96,347

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 qualify for setoff accounting.


	December 31, 2019								December 31, 2018
			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	$	138,511	$	—	$	—	$	138,511	$	50,507	$	—	$	—	$	50,507
Deutsche Bank		9,138		—		—		9,138		26,770		—		—		26,770
RJ O'Brien		5,414		—		—		5,414		6,831		—		—		6,831
Goldman Sachs		2,548		—		—		2,548		—		—		—		—
JPMorgan Chase Bank, N.A.		2,196		—		—		2,196		1,399		—		—		1,399
Mizuho Securities		1,597		—		—		1,597		—		—		—		—
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
Others		282		—		—		282		1,864		—		—		1,864
	$	159,686	$	—	$	—	$	159,686	$	96,347	$	—	$	—	$	96,347

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 setoff accounting.


	December 31, 2019						December 31, 2018
					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	$	1,861	$	—	$	1,861	$	1,169	$	—	$	1,169
Derivatives subject to a master netting arrangement:
Forward purchase contracts		19,040		—		19,040		215		—		215
Forward sale contracts		18,045		—		18,045		26,762		—		26,762
Netting		—		(16,616)		(16,616)		—		(25,082)		(25,082)
		37,085		(16,616)		20,469		26,977		(25,082)		1,895
Total derivatives		38,946		(16,616)		22,330		28,146		(25,082)		3,064
Assets sold under agreements to repurchase:
Amount outstanding		4,141,680		—		4,141,680		1,935,200		—		1,935,200
Unamortized debt issuance cost, net		(627)		—		(627)		(1,341)		—		(1,341)
		4,141,053		—		4,141,053		1,933,859		—		1,933,859
	$	4,179,999	$	(16,616)	$	4,163,383	$	1,962,005	$	(25,082)	$	1,936,923

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, 2019								December 31, 2018
			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	$	1,861	$	—	$	—	$	1,861	$	1,169	$	—	$	—	$	1,169
Credit Suisse First Boston Mortgage Capital LLC		1,235,430		(1,235,430)		—		—		691,030		(690,766)		—		264
JPMorgan Chase Bank, N.A.		936,172		(936,172)		—		—		54,326		(54,326)		—		—
Citibank, N.A.		655,831		(653,170)		—		2,661		14,960		(14,960)		—		—
Morgan Stanley Bank, N.A.		582,941		(582,941)		—		—		77,687		(77,687)		—		—
Bank of America, N.A.		379,400		(374,190)		—		5,210		170,820		(170,820)		—		—
BNP Paribas		183,880		(183,880)		—		—		149,675		(149,482)		—		193
Royal Bank of Canada		175,897		(175,897)		—		—		35,181		(35,181)		—		—
Wells Fargo Bank, N.A.		11,212		—		—		11,212		—		—		—		—
Deutsche Bank		—		—		—		—		741,978		(741,978)		—		—
Others		1,386		—		—		1,386		1,438		—		—		1,438
	$	4,164,010	$	(4,141,680)	$	—	$	22,330	$	1,938,264	$	(1,935,200)	$	—	$	3,064

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	2019		2018		2017
		(in thousands)
Interest rate lock commitments	Net gains on loans held for sale at fair value	$	87,312	$	(8,934)	$	(1,120)
Repurchase agreement derivatives	Interest expense	$	(1,609)	$	(1,704)	$	(330)
Hedged item:
Interest rate lock commitments and loans held for sale	Net gains on loans held for sale at fair value	$	(157,806)	$	81,522	$	(21,255)
Mortgage servicing rights	Net loan servicing fees–Change in fair value of mortgage servicing rights and mortgage servicing liabilities	$	395,497	$	(121,045)	$	(37,855)