The Company holds and issues derivative financial instruments in connection with its operating activities. Derivative financial instruments are created as a result of certain of the Company’s operations and when the Company enters into derivative transactions as part of its interest rate risk management activities. Derivative financial instruments created as a result of the Company’s operations are IRLCs that are created when the Company commits to purchase or originate a loan for sale.

The Company also engages in interest rate risk management activities in an effort to moderate the effect of changes in market interest rates on the fair value of certain of the its assets. To manage this fair value risk resulting from interest rate risk, the Company uses derivative financial instruments acquired with the intention of reducing the risk that changes in market interest rates will result in unfavorable changes in the fair value of the Company’s IRLCs, inventory of loans held for sale and the portion of its MSRs not financed with ESS.

The Company does not designate and qualify any of its derivatives for hedge accounting. The Company records all derivative financial instruments at fair value and records changes in fair value in current period income.

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

(1)	Notional amounts provide an indication of the volume of the Company’s derivative activity.

(2)	All of the derivatives used for hedging purposes are interest rate derivatives and are used as economic hedges.

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.

Offsetting of Derivative Assets

Following are summaries of derivative assets and related netting amounts:


	March 31, 2021						December 31, 2020
	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 - IRLCs	$	362,923	$	—	$	362,923	$	679,961	$	—	$	679,961
Derivatives subject to master netting arrangements:
Forward purchase contracts		14,318		—		14,318		133,267		—		133,267
Forward sale contracts		333,198		—		333,198		1,451		—		1,451
MBS put options		99,670		—		99,670		14,302		—		14,302
Swaption purchase contracts		50,973		—		50,973		11,939		—		11,939
Put options on interest rate futures purchase contracts		27,133		—		27,133		5,520		—		5,520
Call options on interest rate futures purchase contracts		1,539		—		1,539		1,391		—		1,391
Netting		—		(358,902)		(358,902)		—		(136,593)		(136,593)
		526,831		(358,902)		167,929		167,870		(136,593)		31,277
	$	889,754	$	(358,902)	$	530,852	$	847,831	$	(136,593)	$	711,238

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.


	March 31, 2021								December 31, 2020
			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	$	362,923	$	—	$	—	$	362,923	$	679,961	$	—	$	—	$	679,961
JPMorgan Chase Bank, N.A.		56,606		—		—		56,606		17,149		—		—		17,149
Morgan Stanley Bank, N.A.		53,548		—		—		53,548		2,443		—		—		2,443
Wells Fargo Bank, N.A.		18,524		—		—		18,524		—		—		—		—
RJ O'Brien		11,730		—		—		11,730		6,910		—		—		6,910
Bank of America, N.A.		10,013		—		—		10,013		—		—		—		—
Citibank, N.A.		9,685		—		—		9,685		2,026		—		—		2,026
Goldman Sachs		4,203		—		—		4,203		—		—		—		—
Others		3,620		—		—		3,620		2,749		—		—		2,749
	$	530,852	$	—	$	—	$	530,852	$	711,238	$	—	$	—	$	711,238

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.


	March 31, 2021						December 31, 2020
					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	$	24,983	$	—	$	24,983	$	2,935	$	—	$	2,935
Derivatives subject to a master netting arrangement:
Forward purchase contracts		192,793		—		192,793		1,276		—		1,276
Forward sale contracts		32,729		—		32,729		251,149		—		251,149
MBS put options		34,873		—		34,873		—		—		—
Put options on interest rate futures sale contracts		15,881		—		15,881		—		—		—
Call options on interest rate futures sale contracts		1,061		—		1,061		—		—		—
Netting		—		(233,763)		(233,763)		—		(212,722)		(212,722)
		277,337		(233,763)		43,574		252,425		(212,722)		39,703
Total derivatives		302,320		(233,763)		68,557		255,360		(212,722)		42,638
Assets sold under agreements to repurchase:
Amount outstanding		10,856,677		—		10,856,677		9,663,995		—		9,663,995
Unamortized debt issuance costs		(8,200)		—		(8,200)		(9,198)		—		(9,198)
		10,848,477		—		10,848,477		9,654,797		—		9,654,797
	$	11,150,797	$	(233,763)	$	10,917,034	$	9,910,157	$	(212,722)	$	9,697,435

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.


	March 31, 2021								December 31, 2020
			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	$	24,983	$	—	$	—	$	24,983	$	2,935	$	—	$	—	$	2,935
Credit Suisse First Boston Mortgage Capital LLC		2,824,198		(2,805,703)		—		18,495		3,947,752		(3,943,149)		—		4,603
JPMorgan Chase Bank, N.A.		2,841,831		(2,841,831)		—		—		2,752,279		(2,752,279)		—		—
Bank of America, N.A.		1,317,580		(1,317,580)		—		—		634,523		(626,550)		—		7,973
Goldman Sachs		895,437		(895,437)		—		—		—		—		—		—
Citibank, N.A.		787,322		(787,322)		—		—		505,625		(505,625)		—		—
Barclays Capital		738,528		(730,340)		—		8,188		596,729		(596,729)		—		—
Morgan Stanley Bank, N.A.		562,172		(562,172)		—		—		331,546		(331,546)		—		—
Royal Bank of Canada		434,487		(434,487)		—		—		406,348		(406,348)		—		—
BNP Paribas		308,754		(308,754)		—		—		337,823		(336,545)		—		1,278
Wells Fargo Bank, N.A.		173,051		(173,051)		—		—		169,085		(165,224)		—		3,861
Mizuho Securities		8,107		—		—		8,107		6,491		—		—		6,491
Nomura Securities International, Inc.		2,264		—		—		2,264		—		—		—		—
Mitsubishi UFJ Securities		3,305		—		—		3,305		—		—		—		—
Federal Home Loan Mortgage Corporation		—		—		—		—		12,928		—		—		12,928
Others		3,215		—		—		3,215		2,569		—		—		2,569
	$	10,925,234	$	(10,856,677)	$	—	$	68,557	$	9,706,633	$	(9,663,995)	$	—	$	42,638

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


		Quarter ended March 31,
Derivative activity	Income statement line	2021		2020

		(in thousands)
Interest rate lock commitments	Net gains on loans held for sale at fair value (1)	$	(339,086)	$	178,543
Hedged item:
Interest rate lock commitments and loans held for sale	Net gains on loans held for sale at fair value	$	462,538	$	(225,557)
Mortgage servicing rights	Net loan servicing fees–Hedging results	$	(442,151)	$	1,036,570

(1)

Represents net (decrease) increase in fair value of IRLCs from the beginning to the end of the quarter. Amounts recognized at the date of commitment and fair value changes recognized during the quarter until purchase of the underlying loans are shown in the rollforward of IRLCs for the quarter in Note 6 – Fair Value – Assets and Liabilities Measured at Fair Value on a Recurring Basis.