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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments We enter into derivative financial instruments to manage exposures that arise from business activities resulting in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates and credit risk. We do not use these derivatives for speculative purposes, but are instead using them to manage our interest rate and credit risk exposure. Agency Rate Lock and Forward Sale Commitments. We enter into contractual commitments to originate and sell mortgage loans at fixed prices with fixed expiration dates. The commitments become effective when the borrower “rate locks” a specified interest rate within time frames established by us. All potential borrowers are evaluated for creditworthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the rate lock by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers under the GSE programs, we enter into a forward sale commitment with the investor simultaneously with the rate lock commitment with the borrower. The forward sale contract locks in an interest rate and price for the sale of the loan. The terms of the contract with the investor and the rate lock with the borrower are matched in substantially all respects, with the objective of eliminating interest rate risk to the extent practical. Sale commitments with the investors have an expiration date that is longer than our related commitments to the borrower to allow, among other things, for closing of the loan and processing of paperwork to deliver the loan into the sale commitment. These commitments meet the definition of a derivative and are recorded at fair value, including the effects of interest rate movements which are reflected as a component of gain (loss) on derivative instruments, net in the consolidated statements of income. The estimated fair value of rate lock commitments also includes the fair value of the expected net cash flows associated with the servicing of the loan which is recorded as income from MSRs in the consolidated statements of income. During the three and nine months ended September 30, 2024, we recorded net gains of $1.2 million and $0.9 million, respectively, from changes in the fair value of these derivatives and income from MSRs of $13.2 million and $37.9 million, respectively. During the three and nine months ended September 30, 2023, we recorded net losses of $1.0 million and $2.0 million, respectively, from changes in the fair value of these derivatives and income from MSRs of $14.1 million and $48.8 million, respectively. See Note 13 for details. Treasury Futures and Credit Default Swaps. We enter into over-the-counter treasury futures and credit default swaps to hedge our interest rate and credit risk exposure inherent in (1) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale or securitization, and (2) our Agency Business SFR – fixed rate loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt. Our treasury futures typically have a three-month maturity and are tied to the five-year and ten-year treasury rates. Our credit default swaps typically have a five-year maturity, are tied to the credit spreads of the underlying bond issuers and we typically hold our position until we price our Private Label loan securitizations. These instruments do not meet the criteria for hedge accounting, are cleared by a central clearing house and variation margin payments made in cash are treated as a legal settlement of the derivative itself. Our agreements with the counterparties provide for bilateral collateral pledging based on the counterparties' market value. The counterparties have the right to re-pledge the collateral posted, but have the obligation to return the pledged collateral as the market value of the treasury futures change. Our policy is to record the asset and liability positions on a net basis. At September 30, 2024 and December 31, 2023, we had $1.6 million and $1.5 million, respectively, included in others assets, which was comprised of cash posted as collateral of $1.6 million and $1.9 million, respectively, and net liability positions of less than $0.1 million and $0.4 million, respectively, from the fair value of our treasury futures. During the three months ended September 30, 2024, we recorded realized gains of $0.2 million and unrealized losses of $0.1 million to our Agency Business related to our swaps. During the nine months ended September 30, 2024, we recorded realized losses of $0.3 million and unrealized gains of $0.3 million, to our Agency Business related to our swaps. During the three months ended September 30, 2023, we recorded realized and unrealized gains of $0.4 million and $0.2 million, respectively, to our Agency Business related to our swaps. During the nine months ended September 30, 2023, we recorded realized gains of $1.5 million and unrealized losses of $3.0 million to our Agency Business related to our swaps. The realized and unrealized gains and losses are recorded in gain (loss) on derivative instruments, net. A summary of our non-qualifying derivative financial instruments in our Agency Business is as follows ($ in thousands):
|  | September 30, 2024
|  |  |  |  |  |  |  | Fair Value
Derivative |  | Count |  | Notional Value |  | Balance Sheet Location |  | Derivative Assets |  | Derivative Liabilities
Rate lock commitments |  | 2 |  | $ | 25,093 |  |  | Other assets/other liabilities |  | $ | 376 |  |  | $ | (20) |
Forward sale commitments |  | 30 |  | 337,073 |  |  | Other assets/other liabilities |  | 1,536 |  |  | (1,095) |
Treasury futures |  | 82 |  | 8,200 |  |  |  |  | — |  |  | — |
|  |  |  | $ | 370,366 |  |  |  |  | $ | 1,912 |  |  | $ | (1,115) |
|  | December 31, 2023
Rate lock commitments |  | 3 |  | $ | 26,800 |  |  | Other assets/other liabilities |  | $ | 428 |  |  | $ | (759) |
Forward sale commitments |  | 33 |  | 559,079 |  |  | Other assets/other liabilities |  | 6,119 |  |  | (262) |
Treasury futures |  | 82 |  | 8,200 |  |  |  |  | — |  |  | — |
|  |  |  | $ | 594,079 |  |  |  |  | $ | 6,547 |  |  | $ | (1,021) |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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