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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2016
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 September 30, 2016 and December 31, 2015.
Table 10.1 – Fair Value and Notional Amount of Derivative Financial Instruments
 
 
September 30, 2016
 
December 31, 2015
 
 
Fair
Value
 
Notional
Amount
 
Fair
Value
 
Notional
Amount
(In Thousands)
 
 
 
 
Assets - Risk Management Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
16,839

 
$
580,000

 
$
2,590

 
$
658,000

TBAs
 
1,514

 
555,000

 
2,734

 
1,028,500

Futures
 
257

 
130,000

 
—

 
—

Swaptions
 
12,234

 
495,000

 
5,191

 
925,000

Credit default index swaps
 
—

 
—

 
1,207

 
25,000

Assets - Other Derivatives
 
 
 
 
 
 
 
 
Loan purchase commitments
 
6,036

 
892,901

 
4,671

 
764,161

Total Assets
 
$
36,880

 
$
2,652,901

 
$
16,393

 
$
3,400,661

 
 
 
 
 
 
 
 
 
Liabilities - Cash Flow Hedges
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(70,672
)
 
$
139,500

 
$
(48,232
)
 
$
139,500

Liabilities - Risk Management Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
 
(24,499
)
 
966,500

 
(10,134
)
 
1,039,500

TBAs
 
(4,335
)
 
1,000,000

 
(2,519
)
 
1,450,500

Futures
 
(54
)
 
15,000

 
(445
)
 
78,000

Liabilities - Other Derivatives
 
 
 
 
 
 
 
 
Loan purchase commitments
 
(557
)
 
219,300

 
(1,464
)
 
375,815

Total Liabilities
 
$
(100,117
)
 
$
2,340,300

 
$
(62,794
)
 
$
3,083,315

Total Derivative Financial Instruments, Net
 
$
(63,237
)
 
$
4,993,201

 
$
(46,401
)
 
$
6,483,976


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 September 30, 2016, we were party to swaps and swaptions with an aggregate notional amount of $2.04 billion, TBA agreements sold with an aggregate notional amount of $1.56 billion, and financial futures contracts with an aggregate notional amount of $145 million. At December 31, 2015, we were party to swaps and swaptions with an aggregate notional amount of $2.62 billion, TBA contracts sold with an aggregate notional amount of $2.48 billion, and financial futures contracts with an aggregate notional amount of $78 million. During the three and nine months ended September 30, 2016, we recorded net market valuation losses of $5 million and $11 million, respectively, on risk management derivatives. During the three and nine months ended September 30, 2015, we recorded net market valuation losses on risk management derivatives of $29 million and $58 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and MSR income (loss), 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 market valuation gains on LPCs and FSCs were $12 million and $36 million for the three and nine months ended September 30, 2016, respectively, and were $25 million and $44 million for the three and nine months ended September 30, 2015, respectively. The market valuation gains and losses were recorded in Mortgage banking activities, net on our consolidated statements of income.
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 and nine months ended September 30, 2016, designated interest rate agreements had a net market valuation gain of $1 million and a net market valuation loss of $23 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity. For the three and nine months ended September 30, 2015, designated interest rate agreements had net market valuation losses of $12 million and $5 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 $70 million and $47 million at September 30, 2016 and December 31, 2015, respectively.
The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended September 30, 2016 and 2015.
Table 10.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In Thousands)
 
2016
 
2015
 
2016
 
2015
Net interest expense on cash flows hedges
 
$
(1,314
)
 
$
(1,466
)
 
$
(4,049
)
 
$
(4,425
)
Realized net losses reclassified from other comprehensive income
 
(18
)
 
(19
)
 
(55
)
 
(77
)
Total Interest Expense
 
$
(1,332
)
 
$
(1,485
)
 
$
(4,104
)
 
$
(4,502
)

Derivative Counterparty Credit Risk
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2015, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At September 30, 2016, we assessed this risk as remote and did not record a specific valuation adjustment.
At September 30, 2016, we had outstanding derivative agreements with three counterparties (other than clearinghouses) and were in compliance with ISDA agreements governing our open derivative positions.