Derivative Financial Instruments

The following table presents the fair value and notional amount of our derivative financial instruments at March 31, 2019 and December 31, 2018.

Table 11.1 – Fair Value and Notional Amount of Derivative Financial Instruments



	March 31, 2019					December 31, 2018
	Fair Value			Notional Amount		Fair Value			Notional Amount
(In Thousands)	Fair Value			Notional Amount		Fair Value			Notional Amount
Assets - Risk Management Derivatives
Interest rate swaps	$	11,490		$	1,674,000	$	28,211		$	2,106,500
TBAs	5,826			910,000		4,665			520,000
Assets - Other Derivatives
Loan purchase commitments	4,967			586,736		2,913			331,161
Total Assets	$	22,283		$	3,170,736	$	35,789		$	2,957,661

Liabilities - Cash Flow Hedges
Interest rate swaps	$	(40,296	)	$	139,500	$	(34,492	)	$	139,500
Liabilities - Risk Management Derivatives
Interest rate swaps	(60,265		)	2,296,000		(36,416		)	1,742,000
TBAs	(9,609		)	1,265,000		(13,215		)	935,000
Liabilities - Other Derivatives
Loan purchase commitments	(772		)	181,123		(732		)	137,224
Total Liabilities	$	(110,942	)	$	3,881,623	$	(84,855	)	$	2,953,724
Total Derivative Financial Instruments, Net	$	(88,659	)	$	7,052,359	$	(49,066	)	$	5,911,385

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 March 31, 2019, we were party to swaps with an aggregate notional amount of $3.97 billion and TBA agreements sold with an aggregate notional amount of $2.18 billion. At December 31, 2018, we were party to swaps with an aggregate notional amount of $3.85 billion and TBA agreements sold with an aggregate notional amount of $1.46 billion.

During the three months ended March 31, 2019 and 2018, risk management derivatives had a net market valuation loss of $45 million and a net valuation gain of $67 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and Other income, 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. For the three months ended March 31, 2019 and 2018, LPCs and FSCs had a net market valuation gain of $11 million and a net market valuation loss of $7 million, respectively, that 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 months ended March 31, 2019 and 2018, changes in the values of designated cash flow hedges were negative $6 million and positive $8 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 $40 million and $34 million at March 31, 2019 and December 31, 2018, respectively.

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three months ended March 31, 2019 and 2018.

Table 11.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges



	Three Months Ended March 31,
(In Thousands)	2019			2018
Net interest expense on cash flows hedges	$	(637	)	$	(998	)
Total Interest Expense	$	(637	)	$	(998	)

Derivative Counterparty Credit Risk

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2018, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At March 31, 2019, we assessed this risk as remote and did not record a specific valuation adjustment.

At March 31, 2019, we had outstanding derivative agreements with two counterparties (other than clearinghouses) and were in compliance with ISDA agreements governing our open derivative positions.