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Derivative Instruments
 6 Months Ended
Jun. 30, 2018
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.
We enter into various forms of credit risk sharing agreements, including credit risk transfer transactions, swap credit enhancements and mortgage insurance contracts, that we account for as derivatives. The majority of our credit-related derivatives are credit risk transfer transactions, whereby a portion of the credit risk associated with losses on a reference pool of mortgage loans is transferred to a third party.
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.
We recognize all derivatives as either assets or liabilities in our condensed consolidated balance sheets at their fair value on a trade date basis. Fair value amounts, which are netted to the extent a legal right of offset exists and is enforceable by law at the counterparty level and are inclusive of the right or obligation associated with the cash collateral posted or received, are recorded in “Other assets” or “Other liabilities” in our condensed consolidated balance sheets. See “Note 13, Fair Value” for additional information on derivatives recorded at fair value. We present cash flows from derivatives as operating activities in our condensed consolidated statements of cash flows.
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 June 30, 2018
 
As of December 31, 2017
 
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
$
93,391

 
$
723

 
$
19,845

 
$
(674
)
 
$
52,732

 
$
772

 
$
70,211

 
$
(2,120
)
Receive-fixed
106,673

 
1,123

 
63,209

 
(1,296
)
 
31,671

 
2,391

 
138,852

 
(1,764
)
Basis
273

 
98

 
600

 
—

 
873

 
124

 
—

 
—

Foreign currency
229

 
37

 
231

 
(59
)
 
234

 
59

 
236

 
(56
)
Swaptions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay-fixed
11,525

 
254

 
600

 
(2
)
 
9,750

 
95

 
4,000

 
(20
)
Receive-fixed
500

 
19

 
7,375

 
(336
)
 
250

 
13

 
9,250

 
(304
)
Other(1)
24,716

 
20

 
—

 
(1
)
 
13,240

 
22

 
7,315

 
(1
)
Total gross risk management derivatives
237,307

 
2,274

 
91,860

 
(2,368
)
 
108,750

 
3,476

 
229,864

 
(4,265
)
Accrued interest receivable (payable)
—

 
418

 
—

 
(438
)
 
—

 
835

 
—

 
(814
)
Netting adjustment(2)
—

 
(2,608
)
 
—

 
2,756

 
—

 
(4,272
)
 
—

 
4,979

Total net risk management derivatives
$
237,307

 
$
84

 
$
91,860

 
$
(50
)
 
$
108,750

 
$
39

 
$
229,864

 
$
(100
)
Mortgage commitment derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage commitments to purchase whole loans
$
6,025

 
$
20

 
$
1,506

 
$
(1
)
 
$
4,143

 
$
9

 
$
1,570

 
$
(2
)
Forward contracts to purchase mortgage-related securities
80,636

 
263

 
11,060

 
(16
)
 
45,925

 
108

 
21,099

 
(21
)
Forward contracts to sell mortgage-related securities
5,498

 
5

 
134,031

 
(537
)
 
19,320

 
15

 
85,556

 
(205
)
Total mortgage commitment derivatives
92,159

 
288

 
146,597

 
(554
)
 
69,388

 
132

 
108,225

 
(228
)
Derivatives at fair value
$
329,466

 
$
372

 
$
238,457

 
$
(604
)
 
$
178,138

 
$
171

 
$
338,089

 
$
(328
)
__________
(1) 
Includes credit risk transfer transactions, futures, swap credit enhancements and mortgage insurance contracts that we account for as derivatives.
(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 $742 million and $1.4 billion as of June 30, 2018 and December 31, 2017, respectively. Cash collateral received was $594 million and $649 million as of June 30, 2018 and December 31, 2017, respectively.
We record all derivative gains and losses, including accrued interest, in “Fair value gains (losses), net” in our condensed 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 Three Months
 
For the Six Months
 
Ended June 30,
 
Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in millions)
Risk management derivatives:
 
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
 
Pay-fixed
$
967

 
$
(691
)
 
$
3,750

 
$
—

Receive-fixed
(597
)
 
639

 
(2,984
)
 
322

Basis
(3
)
 
16

 
(26
)
 
23

Foreign currency
(41
)
 
11

 
(25
)
 
23

Swaptions:
 
 
 
 
 
 
 
Pay-fixed
36

 
(48
)
 
165

 
(48
)
Receive-fixed
(22
)
 
(8
)
 
(38
)
 
(26
)
Other
(16
)
 
3

 
(4
)
 
(5
)
Net accrual of periodic settlements
(286
)
 
(224
)
 
(501
)
 
(479
)
Total risk management derivatives fair value gains (losses), net
38

 
(302
)
 
337

 
(190
)
Mortgage commitment derivatives fair value gains (losses), net
(76
)
 
(192
)
 
488

 
(272
)
Total derivatives fair value gains (losses), net
$
(38
)
 
$
(494
)
 
$
825

 
$
(462
)
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 OTC 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 12, Netting Arrangements” for information on our rights to offset assets and liabilities.