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Derivative Instruments
 3 Months Ended
Mar. 31, 2019
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 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 derivative contracts 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 that we account for as derivatives, including some of our credit risk transfer transactions and swap credit enhancements. 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 that are associated with some of our other credit risk transfer transactions, whereby we manage investment risk to guarantee that certain unconsolidated VIEs have sufficient cash flows to pay their 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 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 March 31, 2019
 
As of December 31, 2018
 
 
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
 
$
70,599

 
$
171

 
$
22,538

 
$
(823
)
 
$
71,416

 
$
438

 
$
21,253

 
$
(740
)
Receive-fixed
 
89,157

 
1,037

 
53,059

 
(541
)
 
88,799

 
1,113

 
58,399

 
(860
)
Basis
 
273

 
129

 
—

 
—

 
250

 
104

 
624

 
—

Foreign currency
 
226

 
35

 
228

 
(66
)
 
221

 
22

 
223

 
(72
)
Swaptions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay-fixed
 
5,350

 
46

 
5,625

 
(45
)
 
10,375

 
191

 
1,000

 
(4
)
Receive-fixed
 
1,100

 
51

 
6,375

 
(287
)
 
500

 
20

 
7,375

 
(338
)
Futures(1)
 
21,594

 
—

 
—

 
—

 
16,631

 
—

 
—

 
—

Total gross risk management derivatives
 
188,299

 
1,469

 
87,825

 
(1,762
)
 
188,192

 
1,888

 
88,874

 
(2,014
)
Accrued interest receivable (payable)
 
—

 
395

 
—

 
(462
)
 
—

 
400

 
—

 
(419
)
Netting adjustment(2)
 
—

 
(1,781
)
 
—

 
2,126

 
—

 
(2,266
)
 
—

 
2,315

Total net risk management derivatives
 
$
188,299

 
$
83

 
$
87,825

 
$
(98
)
 
$
188,192

 
$
22

 
$
88,874

 
$
(118
)
Mortgage commitment derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage commitments to purchase whole loans
 
$
3,901

 
$
26

 
$
2,153

 
$
(3
)
 
$
4,370

 
$
29

 
$
57

 
$
—

Forward contracts to purchase mortgage-related securities
 
53,514

 
403

 
9,649

 
(10
)
 
40,650

 
349

 
1,045

 
(3
)
Forward contracts to sell mortgage-related securities
 
10,547

 
10

 
86,515

 
(653
)
 
292

 
1

 
70,593

 
(645
)
Total mortgage commitment derivatives
 
67,962

 
439

 
98,317

 
(666
)
 
45,312

 
379

 
71,695

 
(648
)
Credit enhancement derivatives
 
32,745

 
62

 
2,874

 
(29
)
 
33,431

 
57

 
919

 
(11
)
Derivatives at fair value
 
$
289,006

 
$
584

 
$
189,016

 
$
(793
)
 
$
266,935

 
$
458

 
$
161,488

 
$
(777
)
(1) 
Futures have no ascribable fair value because 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 $882 million and $713 million as of March 31, 2019 and December 31, 2018, respectively. Cash collateral received was $537 million and $664 million as of March 31, 2019 and December 31, 2018, 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 Ended March 31,
 
 
 
 
2019
 
2018
 
 
(Dollars in millions)
Risk management derivatives:
 
 
 
 
Swaps:
 
 
 
 
Pay-fixed
 
$
(1,335
)
 
$
2,783

Receive-fixed
 
1,281

 
(2,387
)
Basis
 
24

 
(23
)
Foreign currency
 
19

 
16

Swaptions:
 
 
 
 
Pay-fixed
 
(177
)
 
129

Receive-fixed
 
7

 
(16
)
Futures
 
59

 
8

Net accrual of periodic settlements
 
(266
)
 
(215
)
Total risk management derivatives fair value gains (losses), net
 
(388
)
 
295

Mortgage commitment derivatives fair value gains (losses), net
 
(300
)
 
564

Credit enhancement derivatives fair value gains (losses), net
 
(7
)
 
4

Total derivatives fair value gains (losses), net
 
$
(695
)
 
$
863

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.