Derivative Financial Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The following table presents the fair value and notional amount of our derivative financial instruments at March 31, 2020 and December 31, 2019.

Table 11.1 – Fair Value and Notional Amount of Derivative Financial Instruments

	March 31, 2020					December 31, 2019
	Fair Value			Notional Amount		Fair Value			Notional Amount
(In Thousands)
Assets - Risk Management Derivatives
Interest rate swaps	$	—		$	—	$	17,095		$	1,399,000
TBAs	90,717			4,490,000		5,755			2,445,000
Interest rate futures	—			—		777			213,700
Swaptions	—			—		1,925			1,065,000
Assets - Other Derivatives
Loan purchase and interest rate lock commitments	—			—		10,149			1,537,162
Total Assets	$	90,717		$	4,490,000	$	35,701		$	6,659,862
Liabilities - Cash Flow Hedges
Interest rate swaps	$	—		$	—	$	(51,530	)	$	139,500
Liabilities - Risk Management Derivatives
Interest rate swaps	—			—		(97,235		)	2,314,300
TBAs	(110,648		)	4,490,000		(13,359		)	4,160,000
Interest rate futures	—			—		(10		)	12,300
Liabilities - Other Derivatives
Loan purchase commitments	(3,966		)	226,372		(1,290		)	303,394
Total Liabilities	$	(114,614	)	$	4,716,372	$	(163,424	)	$	6,929,494
Total Derivative Financial Instruments, Net	$	(23,897	)	$	9,206,372	$	(127,723	)	$	13,589,356

Risk Management Derivatives

To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheets, we may enter into derivative contracts. At March 31, 2020, we were party to TBA agreements sold with an aggregate notional amount of $8.98 billion. At December 31, 2019, we were party to swaps and swaptions with an aggregate notional amount of $4.78 billion, TBA agreements sold with an aggregate notional amount of $6.61 billion, and interest rate futures contracts with an aggregate notional amount of $226 million.

During the three months ended March 31, 2020 and 2019, risk management derivatives had net market valuation losses of $98 million and $45 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and Other income on our consolidated statements of income (loss). During the three months ended March 31, 2020, we settled substantially all of our outstanding derivative contracts as we determined that they were no longer effectively managing the risks associated with certain assets and liabilities.

Loan Purchase and Interest Rate Lock Commitments

LPCs and IRLCs that qualify as derivatives are recorded at their estimated fair values. For the three months ended March 31, 2020 and 2019, LPCs and IRLCs had net market valuation gains of $18 million and $11 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).

Derivatives Designated as Cash Flow Hedges

To manage the variability in interest expense related to portions of our long-term debt and certain adjustable-rate securitization entity liabilities that are included in our consolidated balance sheets for financial reporting purposes, we designated certain interest rate swaps as cash flow hedges.

For the three months ended March 31, 2020 and 2019, changes in the values of designated cash flow hedges were negative $33 million and negative $6 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity. During the three months ended March 31, 2020, we terminated and settled all of our outstanding derivatives that had been designated as cash flow hedges with a payment of $84 million. For interest rate agreements currently or previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $84 million and $51 million at March 31, 2020 and December 31, 2019, respectively. We will amortize this loss into interest expense over the remaining term of the trust preferred securities and subordinated notes.

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three months ended March 31, 2020 and 2019.

Table 11.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges

	Three Months Ended March 31,
(In Thousands)	2020			2019
Net interest expense on cash flows hedges	$	(860	)	$	(637	)
Realized net losses reclassified from other comprehensive income	(79		)	—
Total Interest Expense	$	(939	)	$	(637	)

Derivative Counterparty Credit Risk

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At March 31, 2020, we assessed this risk as remote and did not record a specific valuation adjustment.

At March 31, 2020, we were in compliance with our derivative counterparty ISDA agreements.