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Derivative Instruments
 12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments  Derivative InstrumentsDerivative 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 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 derivative contracts we use for interest rate risk management purposes fall into these broad categories:
•
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.
•
Foreign currency swaps. These swaps convert debt that we issue in foreign denominated currencies into U.S. dollars. We enter into foreign currency swaps only to the extent that we hold foreign currency debt.
•
Futures. These are standardized exchange-traded contracts that either obligate a buyer to buy an asset at a predetermined date and price or a seller to sell an asset at a predetermined date and price. The types of futures contracts we enter into include Eurodollar, U.S. Treasury and swaps.
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. Additionally, we enter into derivative transactions associated with credit risk transfer transactions, whereby we manage investment risk to guarantee that certain unconsolidated VIEs have sufficient cash flows to pay its contractual obligations.
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 consolidated balance sheets at their fair value. See “Note 15, Fair Value” for additional information on derivatives recorded at fair value.
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, 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
 
$
71,416

 
$
438

 
$
21,253

 
$
(740
)
 
$
52,732

 
$
772

 
$
70,211

 
$
(2,120
)
Receive-fixed
 
88,799

 
1,113

 
58,399

 
(860
)
 
31,671

 
2,391

 
138,852

 
(1,764
)
Basis
 
250

 
104

 
624

 
—

 
873

 
124

 
—

 
—

Foreign currency
 
221

 
22

 
223

 
(72
)
 
234

 
59

 
236

 
(56
)
Swaptions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay-fixed
 
10,375

 
191

 
1,000

 
(4
)
 
9,750

 
95

 
4,000

 
(20
)
Receive-fixed
 
500

 
20

 
7,375

 
(338
)
 
250

 
13

 
9,250

 
(304
)
Futures(1)
 
 
16,631

 
—

 
—

 
—

 
—

 
—

 
7,315

 
—

Total gross risk management derivatives
 
188,192

 
1,888

 
88,874

 
(2,014
)
 
95,510

 
3,454

 
229,864

 
(4,264
)
Accrued interest receivable (payable)
 
—

 
400

 
—

 
(419
)
 
—

 
835

 
—

 
(814
)
Netting adjustment(2)
 
—

 
(2,266
)
 
—

 
2,315

 
—

 
(4,272
)
 
—

 
4,979

Total net risk management derivatives
 
$
188,192

 
$
22

 
$
88,874

 
$
(118
)
 
$
95,510

 
$
17

 
$
229,864

 
$
(99
)
Mortgage commitment derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage commitments to purchase whole loans
 
$
4,370

 
$
29

 
$
57

 
$
—

 
$
4,143

 
$
9

 
$
1,570

 
$
(2
)
Forward contracts to purchase mortgage-related securities
 
40,650

 
349

 
1,045

 
(3
)
 
45,925

 
108

 
21,099

 
(21
)
Forward contracts to sell mortgage-related securities
 
292

 
1

 
70,593

 
(645
)
 
19,320

 
15

 
85,556

 
(205
)
Total mortgage commitment derivatives
 
45,312

 
379

 
71,695

 
(648
)
 
69,388

 
132

 
108,225

 
(228
)
Credit enhancement derivatives
 
33,431

 
57

 
919

 
(11
)
 
13,240

 
22

 
—

 
(1
)
Derivatives at fair value
 
$
266,935

 
$
458

 
$
161,488

 
$
(777
)
 
$
178,138

 
$
171

 
$
338,089

 
$
(328
)

(1) 
Futures have no ascribable fair value since the positions are settled daily.
(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 $713 million and $1.4 billion as of December 31, 2018 and 2017, respectively. Cash collateral received was $664 million and $649 million as of December 31, 2018 and 2017, respectively.We record all derivative gains and losses, including accrued interest, in “Fair value gains (losses), 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 Year Ended December 31,
 
 
2018
 
2017
 
2016
 
 
(Dollars in millions)
Risk management derivatives:
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
Pay-fixed
 
$
2,940

 
$
1,296

 
$
757

Receive-fixed
 
(1,834
)
 
(851
)
 
(751
)
Basis
 
(21
)
 
21

 
(21
)
Foreign currency
 
(51
)
 
49

 
(76
)
Swaptions:
 
 
 
 
 
 
Pay-fixed
 
100

 
(161
)
 
163

Receive-fixed
 
(39
)
 
(60
)
 
(230
)
Futures
 
38

 
22

 
154

Net accrual of periodic settlements
 
(1,061
)
 
(889
)
 
(1,125
)
Total risk management derivatives fair value gains (losses), net
 
72

 
(573
)
 
(1,129
)
Mortgage commitment derivatives fair value gains (losses), net
 
324

 
(603
)
 
288

Credit enhancement derivatives fair value gains (losses), net
 
26

 
(9
)
 
6

Total derivatives fair value gains (losses), net
 
$
422

 
$
(1,185
)
 
$
(835
)
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 14, Netting Arrangements” for information on our rights to offset assets and liabilities as of December 31, 2018 and 2017.