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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2017
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, 2017 and December 31, 2016.
Table 9.1 – Fair Value and Notional Amount of Derivative Financial Instruments
 
 
June 30, 2017
 
December 31, 2016
 
 
Fair
Value
 
Notional
Amount
 
Fair
Value
 
Notional
Amount
(In Thousands)
 
 
 
 
Assets - Risk Management Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
3,466

 
$
376,000

 
$
19,859

 
$
1,009,000

TBAs
 
3,381

 
930,000

 
8,300

 
850,000

Futures
 
9

 
7,500

 
—

 
—

Swaptions
 
869

 
300,000

 
5,121

 
345,000

Assets - Other Derivatives
 
 
 
 
 
 
 
 
Loan purchase commitments
 
4,539

 
534,596

 
3,315

 
352,981

Total Assets
 
$
12,264

 
$
2,148,096

 
$
36,595

 
$
2,556,981

 
 
 
 
 
 
 
 
 
Liabilities - Cash Flow Hedges
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(45,454
)
 
$
139,500

 
$
(44,822
)
 
$
139,500

Liabilities - Risk Management Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
 
(18,633
)
 
1,874,500

 
(12,097
)
 
1,101,500

TBAs
 
(1,506
)
 
330,000

 
(4,681
)
 
510,000

Futures
 
(163
)
 
29,000

 
(928
)
 
87,500

Liabilities - Other Derivatives
 
 
 
 
 
 
 
 
Loan purchase commitments
 
(3,419
)
 
719,854

 
(3,801
)
 
584,862

Total Liabilities
 
$
(69,175
)
 
$
3,092,854

 
$
(66,329
)
 
$
2,423,362

Total Derivative Financial Instruments, Net
 
$
(56,911
)
 
$
5,240,950

 
$
(29,734
)
 
$
4,980,343


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 June 30, 2017, we were party to swaps and swaptions with an aggregate notional amount of $2.55 billion, TBA agreements sold with an aggregate notional amount of $1.26 billion, and financial futures contracts with an aggregate notional amount of $36.5 million. At December 31, 2016, we were party to swaps and swaptions with an aggregate notional amount of $2.46 billion, TBA agreements sold with an aggregate notional amount of $1.36 billion, and financial futures contracts with an aggregate notional amount of $88 million.
During the three and six months ended June 30, 2017, risk management derivatives had net market valuation losses of $20 million and $27 million, respectively. During the three and six months ended June 30, 2016, risk management derivatives had a net market valuation gain of $2 million and a net market valuation loss of $5 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and MSR income, net on our consolidated statements of income.
Loan Purchase Commitments
LPCs that qualify as derivatives are recorded at their estimated fair values. Net market valuation gains on LPCs were $10 million and $21 million for the three and six months ended June 30, 2017, respectively, and were $11 million and $23 million for the three and six months ended June 30, 2016, 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 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 with an aggregate notional balance of $140 million.
For the three and six months ended June 30, 2017, changes in the values of designated cash flow hedges were negative $2 million and negative $1 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity. For the three and six months ended June 30, 2016, changes in the values of designated cash flow hedges were negative $9 million and negative $23 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity. For interest rate agreements currently or previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $45 million and $44 million at June 30, 2017 and December 31, 2016, 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 six months ended June 30, 2017 and 2016.
Table 9.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In Thousands)
 
2017
 
2016
 
2017
 
2016
Net interest expense on cash flows hedges
 
$
(1,172
)
 
$
(1,348
)
 
$
(2,397
)
 
$
(2,735
)
Realized net losses reclassified from other comprehensive income
 
(14
)
 
(19
)
 
(28
)
 
(37
)
Total Interest Expense
 
$
(1,186
)
 
$
(1,367
)
 
$
(2,425
)
 
$
(2,772
)

Derivative Counterparty Credit Risk
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At June 30, 2017, we assessed this risk as remote and did not record a specific valuation adjustment.
At June 30, 2017, we had outstanding derivative agreements with three counterparties (other than clearinghouses) and were in compliance with ISDA agreements governing our open derivative positions.