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Derivative Instruments
 12 Months Ended
Dec. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
 Derivative Instruments
Derivative instruments are an integral part of our strategy in managing interest rate risk. Derivative instruments may be privately-negotiated, bilateral contracts, or they may be listed and traded on an exchange. We refer to our derivative transactions made pursuant to bilateral contracts as our over-the-counter (“OTC”) derivative transactions and our derivative transactions accepted for clearing by a derivatives clearing organization as our cleared derivative transactions. We typically do not settle the notional amount of our risk management derivatives; rather, notional amounts provide the basis for calculating actual payments or settlement amounts. The derivatives we use for interest rate risk management purposes consist primarily of interest rate swaps and interest rate options.
•
Interest rate swap contracts. An interest rate swap is a transaction between two parties in which each party agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional amount of principal. The types of interest rate swaps we use include pay-fixed swaps, receive-fixed swaps and basis swaps.
•
Interest rate option contracts. These contracts primarily include pay-fixed swaptions, receive-fixed swaptions, cancelable swaps and interest rate caps. A swaption is an option contract that allows us or a counterparty to enter into a pay-fixed or receive-fixed swap at some point in the future.
We enter into forward purchase and sale commitments that lock in the future delivery of mortgage loans and mortgage-related securities at a fixed price or yield. Certain commitments to purchase mortgage loans and purchase or sell mortgage-related securities meet the criteria of a derivative. We typically settle the notional amount of our mortgage commitments that are accounted for as derivatives.
Notional and Fair Value Position of our Derivatives
The following table displays the notional amount and estimated fair value of our asset and liability derivative instruments as of December 31, 2014 and 2013.
 
December 31, 2014
 
December 31, 2013
 
Asset Derivatives
 
Liability Derivatives
 
Asset Derivatives
 
Liability Derivatives
 
Notional Amount
 
Estimated Fair Value
 
Notional Amount
 
Estimated Fair Value
 
Notional Amount
 
Estimated Fair Value
 
Notional Amount
 
Estimated Fair Value
 
(Dollars in millions)
Risk management derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay-fixed
$
41,965

 
$
733

 
$
123,557

 
$
(7,125
)
 
$
68,637

 
$
5,378

 
$
93,428

 
$
(4,759
)
Receive-fixed
67,629

 
4,486

 
157,272

 
(1,302
)
 
67,527

 
3,320

 
156,250

 
(3,813
)
Basis
5,769

 
123

 
7,100

 
(2
)
 
27,014

 
36

 
600

 
—

Foreign currency
344

 
144

 
273

 
(30
)
 
389

 
120

 
653

 
(38
)
Swaptions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay-fixed
11,100

 
57

 
26,525

 
(175
)
 
33,400

 
445

 
48,025

 
(600
)
Receive-fixed
750

 
96

 
29,525

 
(816
)
 
8,000

 
117

 
48,025

 
(484
)
Other(1)
1,071

 
28

 
12

 
(1
)
 
769

 
28

 
13

 
(1
)
Total gross risk management derivatives
128,628

 
5,667

 
344,264

 
(9,451
)
 
205,736

 
9,444

 
346,994

 
(9,695
)
Accrued interest receivable (payable)
—

 
749

 
—

 
(1,013
)
 
—

 
786

 
—

 
(930
)
Netting adjustment(2)
—

 
(5,186
)
 
—

 
10,194

 
—

 
(8,422
)
 
—

 
9,370

Total net risk management derivatives
$
128,628

 
$
1,230

 
$
344,264

 
$
(270
)
 
$
205,736

 
$
1,808

 
$
346,994

 
$
(1,255
)
Mortgage commitment derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage commitments to purchase whole loans
$
6,157

 
$
28

 
$
428

 
$
—

 
$
1,138

 
$
1

 
$
4,353

 
$
(31
)
Forward contracts to purchase mortgage-related securities
43,533

 
223

 
6,112

 
(8
)
 
3,276

 
4

 
20,861

 
(168
)
Forward contracts to sell mortgage-related securities
4,886

 
4

 
57,910

 
(336
)
 
35,423

 
260

 
7,886

 
(15
)
Total mortgage commitment derivatives
$
54,576

 
$
255

 
$
64,450

 
$
(344
)
 
$
39,837

 
$
265

 
$
33,100

 
$
(214
)
Derivatives at fair value
$
183,204

 
$
1,485

 
$
408,714

 
$
(614
)
 
$
245,573

 
$
2,073

 
$
380,094

 
$
(1,469
)
__________
(1) 
Includes interest rate caps, swap credit enhancements and mortgage insurance contracts that we account for as derivatives. The mortgage insurance contracts have payment provisions that are not based on a notional amount.
(2) 
The netting adjustment represents the effect of the legal right to offset under legally enforceable master netting arrangements to settle with the same counterparty on a net basis, including cash collateral posted and received. Cash collateral posted was $5.3 billion and $2.0 billion as of December 31, 2014 and 2013, respectively. Cash collateral received was $245 million and $1.0 billion as of December 31, 2014 and 2013, respectively.
A majority of our OTC derivative contracts contain provisions that require our senior unsecured debt to maintain a minimum credit rating from S&P and Moody’s. If our senior unsecured debt credit ratings were downgraded to established thresholds in these derivative contracts, which range from A+ to BBB+, we could be required to provide additional collateral to or terminate transactions with certain counterparties. The aggregate fair value of all OTC derivatives with credit-risk-related contingent features that were in a net liability position was $2.6 billion and $2.1 billion, for which we posted collateral of $2.4 billion and $2.0 billion in the normal course of business as of December 31, 2014 and 2013, respectively. Had all of the credit-risk-related contingency features underlying these agreements been triggered, an additional $269 million and $130 million would have been required to be posted as collateral or to immediately settle our positions based on the individual agreements and our fair value position as of December 31, 2014 and 2013, respectively. A reduction in our credit ratings may also cause derivatives clearing organizations or their members to demand that we post additional collateral for our cleared derivatives contracts.
We record all derivative gains and losses, including accrued interest, in “Fair value (losses) gains, net” in our consolidated statements of operations and comprehensive income. The following table displays, by type of derivative instrument, the fair value gains and losses, net on our derivatives for the years ended December 31, 2014, 2013 and 2012.
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
 
(Dollars in millions)
Risk management derivatives:
 
 
 
 
 
Swaps:
 
 
 
 
 
Pay-fixed
$
(7,703
)
 
$
14,393

 
$
(2,254
)
Receive-fixed
4,229

 
(10,721
)
 
1,102

Basis
85

 
(115
)
 
78

Foreign currency
27

 
(101
)
 
59

Swaptions:
 
 
 
 
 
Pay-fixed
(4
)
 
(238
)
 
132

Receive-fixed
(197
)
 
307

 
410

Other
1

 
21

 
(35
)
Accrual of periodic settlements:
 
 
 
 
 
Pay-fixed interest-rate swaps
(3,712
)
 
(4,463
)
 
(4,427
)
Received-fixed interest-rate swaps
2,600

 
3,632

 
2,950

Other
50

 
64

 
47

Total risk management derivatives fair value (losses) gains, net
$
(4,624
)
 
$
2,779

 
$
(1,938
)
Mortgage commitment derivatives fair value (losses) gains, net
(1,140
)
 
501

 
(1,688
)
Total derivatives fair value (losses) gains, net
$
(5,764
)
 
$
3,280

 
$
(3,626
)
Derivative Counterparty Credit Exposure
Our derivative counterparty credit exposure relates principally to interest rate derivative contracts. We are exposed to the risk that a counterparty in a derivative transaction will default on payments due to us, which may require us to seek a replacement derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable replacement. We manage our derivative counterparty credit exposure relating to our risk management derivative transactions mainly through enforceable master netting arrangements, which allow us to net derivative assets and liabilities with the same counterparty or clearing organization and clearing member. For our risk management derivative transactions, we require counterparties to post collateral, which may include cash, U.S. Treasury securities, agency debt and agency mortgage-related securities.
See “Note 17, Netting Arrangements” for information on our rights to offset assets and liabilities as of December 31, 2014 and 2013.