Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company enters into interest rate lock commitments ("IRLCs"), forward commitments to sell mortgage loans and forward commitments to purchase loans, which are considered derivative financial instruments. These items are accounted for as free-standing derivatives and are included in the Condensed Consolidated Balance Sheets at fair value. The Company treats all of its derivative instruments as economic hedges; therefore, none of its derivative instruments qualify for designation as accounting hedges. Changes in the fair value of the IRLCs and forward commitments to sell mortgage loans are recorded in current period earnings and are included in Gain on sale of loans, net in the Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) . Forward commitments to purchase mortgage loans are recognized in current period earnings and are included in Gain on sale of loans, net in the Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) . Additional detail regarding derivative financial instruments is provided in Note 13, Derivative Financial Instruments in our 2022 10-K report.

Net hedging gains and losses were as follows:


	Three Months Ended March 31,
	2023		2022
Hedging (losses) gains (1)	$	(79,133)	$	1,533,145

(1) Includes the change in fair value related to derivatives economically hedging MSRs identified for sale.

Refer to Note 2, Fair Value Measurements, for additional information on the fair value of derivative financial instruments.

Notional and Fair Value

The notional and fair values of derivative financial instruments not designated as hedging instruments were as follows:


	Notional Value		Derivative Asset		Derivative Liability
Balance at March 31, 2023:
IRLCs, net of loan funding probability (1)	$	7,105,543	$	182,112	$	—
Forward commitments (2)	$	13,494,056	$	5,101	$	87,918

Balance at December 31, 2022:
IRLCs, net of loan funding probability (1)	$	4,373,465	$	90,635	$	—
Forward commitments (2)	$	10,963,989	$	22,444	$	25,117

(1) IRLCs are also discussed in Note 9, Commitments, Contingencies, and Guarantees.

(2) Includes the fair value and net notional value related to derivatives economically hedging MSRs identified for sale.

Counterparty agreements for forward commitments contain master netting agreements. The table below presents the gross amounts of recognized assets and liabilities subject to master netting agreements. Margin cash is cash that is exchanged by counterparties to be held as collateral related to these derivative financial instruments. Margin cash held on behalf of counterparties is recorded in Cash and cash equivalents, and the related liability is classified in Other liabilities in the Condensed Consolidated Balance Sheets. Margin cash pledged to counterparties is excluded from cash and cash equivalents and instead recorded in Other assets as a margin call receivables from counterparties in the Condensed Consolidated Balance Sheets. The Company had $41,178 and $24,102 of margin cash pledged to counterparties related to these forward commitments at March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, there was zero and $959 of margin cash held on behalf of counterparties, respectively.


	Gross Amount of Recognized Assets or Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in the Condensed Consolidated Balance Sheets
Offsetting of Derivative Assets
Balance at March 31, 2023:
Forward commitments	$	9,978	$	(4,877)	$	5,101
Balance at December 31, 2022:
Forward commitments	$	71,484	$	(49,040)	$	22,444

Offsetting of Derivative Liabilities
Balance at March 31, 2023:
Forward commitments	$	(144,984)	$	57,066	$	(87,918)
Balance at December 31, 2022:
Forward commitments	$	(69,007)	$	43,890	$	(25,117)

Counterparty Credit Risk

Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance with the terms of the contract, which exceeds the value of existing collateral, if any. The Company attempts to limit its credit risk by dealing with creditworthy counterparties and obtaining collateral where appropriate.

The Company is exposed to credit loss in the event of contractual nonperformance by its trading counterparties and counterparties to its various over-the-counter derivative financial instruments noted in the above Notional and Fair Value discussion. The Company manages this credit risk by selecting only counterparties that it believes to be financially strong, spreading the credit risk among many such counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty, and entering into netting agreements with the counterparties as appropriate.

Certain counterparties have master netting agreements. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. Derivative assets in the Condensed Consolidated Balance Sheets represent derivative contracts in a gain position, net of loss positions with the same counterparty and, therefore, also represent the Company’s maximum counterparty credit risk. The Company incurred no credit losses due to nonperformance of any of its counterparties during the three months ended March 31, 2023 and 2022.