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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2015
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 June 30, 2015 and December 31, 2014.
 
 
June 30, 2015
 
December 31, 2014
 
 
Fair
Value
 
Notional
Amount
 
Fair
Value
 
Notional
Amount
(In Thousands)
 
 
 
 
Assets - Risk Management Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
     
$
294

 
$
50,000

 
$
—

 
$
—

TBAs
 
7,625

 
1,246,400

 
6,654

 
1,074,000

Futures
 
—

 
—

 
—

 
—

Swaptions
 
8,726

 
1,185,000

 
7,006

 
575,000

Credit default index swaps
 
3,792

 
100,000

 
1,597

 
50,000

Assets - Other Derivatives
 
 
 
 
 
 
 
 
Loan purchase commitments
 
5,006

 
777,361

 
1,160

 
288,467

Loan forward sale commitments
 
809

 
155,319

 
—

 
—

Total Assets
 
$
26,252

 
$
3,514,080

 
$
16,417

 
$
1,987,467

 
 
 
 
 
 
 
 
 
Liabilities - Cash Flow Hedges
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(39,810
)
 
$
139,500

 
$
(46,845
)
 
$
139,500

Liabilities - Risk Management Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
 
(4,172
)
 
532,500

 
(1,328
)
 
206,000

TBAs
 
(5,466
)
 
1,290,500

 
(9,506
)
 
1,110,000

Futures
 
(260
)
 
54,000

 
(372
)
 
90,000

Liabilities - Other Derivatives
 
 
 
 
 
 
 
 
Loan purchase commitments
 
(4,401
)
 
861,436

 
(41
)
 
27,324

Loan forward sale commitments
 
—

 
—

 
(239
)
 
102,793

Total Liabilities
 
$
(54,109
)
 
$
2,877,936

 
$
(58,331
)
 
$
1,675,617

Total Derivative Financial Instruments, Net
 
$
(27,857
)
 
$
6,392,016

 
$
(41,914
)
 
$
3,663,084


Risk Management Derivatives
To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheet, we may enter into derivative contracts. At June 30, 2015, we were party to swaps and swaptions with an aggregate notional amount of $1.9 billion, TBA contracts sold with an aggregate notional amount of $2.5 billion, and financial futures contracts with an aggregate notional amount of $54 million. Net market valuation adjustments on risk management derivatives were negative $17 million and negative $29 million for the three and six months ended June 30, 2015, respectively. Net market valuation adjustments on risk management derivatives were negative $12 million and negative $25 million for the three and six months ended June 30, 2014, respectively. These net market valuation adjustments are recorded in mortgage banking and investment activities, net on our consolidated statements of income.
Loan Purchase and Forward Sale Commitments
LPCs and FSCs that qualify as derivatives are recorded at their estimated fair values. Net valuation adjustments on LPCs and FSCs were positive $1 million and positive $19 million for the three and six months ended June 30, 2015, respectively, and are reported through our consolidated statements of income in mortgage banking and investment activities, net.
Derivatives Designated as Cash Flow Hedges
To manage the variability in interest expense related to 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 with an aggregate notional balance of $140 million.
For the three months ended June 30, 2015 and 2014, changes in the values of designated cash flow hedges were positive $15 million and negative $5 million, respectively, and were recorded in accumulated other comprehensive income, a component of equity. For the six months ended June 30, 2015 and 2014, changes in the values of designated cash flow hedges were positive $7 million and negative $14 million, respectively. For interest rate agreements currently or previously designated as cash flow hedges, our total unrealized loss reported in accumulated other comprehensive income was $39 million and $46 million at June 30, 2015 and December 31, 2014, respectively. For both the three and six months ended June 30, 2015 and 2014, we reclassified less than $100 thousand of unrealized losses on derivatives to interest expense. Accumulated other comprehensive loss of less than $1 million will be amortized into interest expense, a component of our consolidated income statements, over the remaining life of the hedge liabilities.
The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and six months ended June 30, 2015 and 2014.
Impact on Interest Expense of Our Interest Rate Agreements Accounted for as Cash Flow Hedges
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2015
 
2014
 
2015
 
2014
Net interest expense on cash interest rate agreements
 
$
(1,475
)
 
$
(1,490
)
 
$
(2,959
)
 
$
(2,978
)
Realized expense due to ineffective portion of cash flow hedges
 
—

 
—

 
—

 
—

Realized net losses reclassified from other comprehensive income
 
(26
)
 
(39
)
 
(57
)
 
(99
)
Total Interest Expense
 
$
(1,501
)
 
$
(1,529
)
 
$
(3,016
)
 
$
(3,077
)

Derivative Counterparty Credit Risk
As discussed in our Annual Report on Form 10-K, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments. At June 30, 2015, we assessed this risk as remote and did not record a specific valuation adjustment.
At June 30, 2015, we had outstanding derivative agreements with seven counterparties (other than clearinghouses) and were in compliance with ISDA agreements governing our open derivative positions.