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NOTE 19 DERIVATIVE FINANCIAL INSTRUMENTS
 12 Months Ended
Dec. 31, 2011
Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 19 DERIVATIVE FINANCIAL INSTRUMENTS


Because our current derivative agreements are not exchange-traded, we are exposed to credit loss in the event of nonperformance by the counterparty to the agreements. We control this risk through credit monitoring procedures including financial analysis, dollar limits and other monitoring procedures. The notional amount of our contracts does not represent our exposure to credit loss.


  Foreign Currency Exchange Rate Risk Management


In August and October 2011, we entered into foreign exchange forward contracts with a notional amount of $59,400 to hedge against the effect of changes in the value of the India Rupee (INR) on amounts payable to our India subsidiary, OFSPL, through February 2013. These contracts replaced those that expired in April 2011. We did not designate the foreign exchange contracts as hedges.


Our operations in Uruguay also expose us to foreign currency exchange rate risk, but we consider this risk to be insignificant.


  Interest Rate Management


In our Servicing segment, during 2010, we entered into three interest rate swaps in order to hedge against the effects of changes in interest rates on our borrowings under our advance funding facilities. In 2011, we entered into an additional four interest rate swaps and one interest rate cap. The cap was not designated as a hedge.


The following summarizes our use of swaps at December 31, 2011 to hedge the effects of changes in the interest rate environment on borrowings under our advance funding facilities:


Purpose

Date
Opened

Effective
Date (1)

Maturity

 

We Pay

 

We
Receive

 

Notional
Amount

   

Fair
Value

 
Not designated as hedges:                          
Hedge the effects of a change in 1-Month LIBOR on borrowing under a $265,000 advance funding facility (2) April 2010 July 2010 July 2013     2.0590%   1-Month
LIBOR 		  $ 250,000     $ (6,329 )
Designated as hedges:                                
Hedge the effects of a change in the lender’s commercial paper rate and 1-Month LIBOR on borrowing under a $582,729 advance facility (3)

May 2010 and

June 2010

September 2010 August 2013   1.5750%
and 1.5275% 		  1-Month
LIBOR 		    439,955       (6,368 )
Hedge the effects of changes in the lenders’ commercial paper rate on commercial paper-based advance funding facilities October 2011 June 2013 January 2015     0.9275%   1-Month
LIBOR 		    100,946       (741 )
Hedge the effects of changes in 1-Month LIBOR on LIBOR-based advance funding facilities October 2011 June 2013 January 2015     0.9780%   1-Month
LIBOR 		    100,946       (759 )
Hedge the effects of changes in the lenders’ commercial paper rate on commercial paper-based advance funding facilities (4) December 2011 February 2012 January 2015   0.7000%
and
0.6825% 		  1-Month
LIBOR 		    501,838       (294 )
Total designated as hedges     1,143,685       (8,162 )
Total   $ 1,393,685     $ (14,491 )

(1) The effective date of the swap is the date from which monthly settlements begin to be computed.
   
(2) We originally designated this swap as a cash flow hedge; however, the hedging relationship failed to meet the effectiveness criterion both for the third quarter of 2011 and on a prospective basis beyond the third quarter because declines in advances pledged as collateral to the hedged debt resulted in lower than anticipated borrowings. As a result, we discontinued hedge accounting for this hedging relationship effective July 1, 2011 and began amortizing to earnings the $6,179 of deferred losses in accumulated other comprehensive income. Amortization will continue until the related advance facility matures in July 2013. The balance outstanding under the advance facility at December 31, 2011 was $130,492.

(3) Projected net interest settlements on the swaps for the next twelve months total approximately $4,263 of payments to the counterparty. The balance outstanding under the advance facility at December 31, 2011 was $382,729.
   
(4) Projected net settlements on the swap for the next twelve months total approximately $869 of payments to the counterparties.

The following table summarizes the use of derivatives during 2011:


   

Interest
Rate Cap

   

Foreign
Exchange
Forwards

   

Interest
Rate Swaps

 
                   
Notional balance at December 31, 2010   $ —     $ 6,400     $ 846,888  
Additions     1,600,000       59,400       703,730  
Maturities     —       (19,600 )     (156,933 )
Terminations     —       —       —  
Notional balance at December 31, 2011   $ 1,600,000     $ 46,200     $ 1,393,685  
                         
Fair value of derivative assets (liabilities) at (1):                        
December 31, 2011   $ 3,600     $ (5,785 )   $ (14,491 )
December 31, 2010   $ —     $ 319     $ (15.670 )
                         
Maturity   May 2014     February
2012 to
February
2013 		    July 2013 to January 2015  

(1) Derivatives are reported at fair value in Receivables, Other assets or in Other liabilities.

Other income (expense), net, includes the following related to derivative financial instruments for the years ended December 31:


   

2011

   

2010

   

2009

 
Net realized and unrealized gains (losses) on derivative financial instruments that are not designated as hedges (1)   $ (4,488 )   $ 17     $ 588  
Unrealized losses arising from ineffectiveness of interest rate swaps designated as cash flow hedges     (1,393 )     (150 )     —  
Amortization of deferred losses included in accumulated other comprehensive income related to a discontinued hedging relationship     (1,545 )     —       —  
    $ (7,426 )   $ (133 )   $ 588  

(1) Includes $1,368 of net unrealized gains during 2011 relating to the swap for which we discontinued hedge accounting effective July 1, 2011.

Included in Accumulated other comprehensive loss at December 31, 2011 and December 31, 2010, respectively, were $12,114 and $14,435 of deferred unrealized losses, before taxes of $4,354 and $5,196, respectively, on the interest rate swaps that we designated as cash flow hedges.