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Derivative Financial Instruments and Hedging Activities | 12 Months Ended
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Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Note 19 — Derivative Financial Instruments and Hedging Activities Because many of 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. The following table summarizes the changes in the notional balances of our holdings of derivatives during the year ended December 31, 2013:
| IRLCs |  | U.S. Treasury Futures |  | Forward MBS Trades |  | Interest Rate Caps |  | Interest Rate Swaps
Beginning notional balance | $ | 1,112,519 |  |  | $ | 109,000 |  |  | $ | 1,638,979 |  |  | $ | 1,025,000 |  |  | $ | 1,495,955 |
Additions | 5,887,759 |  |  | 85,000 |  |  | 10,578,176 |  |  | 1,900,000 |  |  | 1,280,000 |
Amortization | (228,806 | ) |  | — |  |  | (33,372 | ) |  | (56,000 | ) |  | — |
Maturities | (5,124,849 | ) |  | — |  |  | (4,156,314 | ) |  | — |  |  | (295,604 | )
Terminations | (895,187 | ) |  | (194,000 | ) |  | (7,076,821 | ) |  | (1,001,000 | ) |  | (2,480,351 | )
Ending notional balance | $ | 751,436 |  |  | $ | — |  |  | $ | 950,648 |  |  | $ | 1,868,000 |  |  | $ | — |
Fair value of derivative assets (liabilities) at: |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2013 | $ | 8,433 |  |  | $ | — |  |  | $ | 6,905 |  |  | $ | 442 |  |  | $ | — |
December 31, 2012 | $ | 5,781 |  |  | $ | (1,258 | ) |  | $ | (1,719 | ) |  | $ | 168 |  |  | $ | (10,836 | )
Maturity | Jan. 2014 - Apr. 2014 |  | N/A |  | Jan. 2014 - Feb. 2014 |  | Nov. 2016 |  | N/A
Foreign Currency Exchange Rate Risk Management We periodically enter into foreign exchange forward contracts to hedge against the effect of changes in the value of the India Rupee on amounts payable to our India subsidiaries. Our operations in Uruguay and the Philippines also expose us to foreign currency exchange rate risk, but we currently consider this risk to be insignificant. Interest Rate Management Match Funded Liabilities We have previously entered into interest rate swaps in order to hedge against the effects of changes in interest rates on our borrowings under our advance funding facilities. These interest rate swap agreements require us to pay a fixed rate and receive a variable interest rate based on one-month LIBOR. At the time that we entered into the agreements, these swaps were designated as hedges for accounting purposes. As disclosed in Note 5 — Fair Value, we terminated these interest rate swaps on May 31, 2013 primarily because the custodial account float balances, which earn a variable rate of interest, are well in excess of variable rate borrowings under advance facilities. The earnings on these deposits reduce our exposure to changes in interest rates. We have also purchased interest rate caps to minimize future interest rate exposure from increases in one-month LIBOR interest rates, as required by the certain of our advance financing arrangements. Certain of these caps were terminated with the payoff and termination of the related financing facilities. Loans Held for Sale, at Fair Value The mortgage loans held for sale which we carry at fair value are subject to interest rate and price risk from the loan funding date until the date the loan is sold into the secondary market. Generally, the fair value of a loan will decline in value when interest rates increase and will rise in value when interest rates decrease. To mitigate this risk, we enter into forward MBS trades to provide an economic hedge against those changes in fair value on mortgage loans held for sale. Forward MBS trades are primarily used to fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Interest Rate Lock Commitments IRLCs represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant, whereby the interest rate is set prior to funding. The loan commitment binds us (subject to the loan approval process) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The borrower is not obligated to obtain the loan, thus we are subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Our interest rate exposure on these derivative loan commitments is hedged with freestanding derivatives such as forward contracts. We enter into forward contracts with respect to fixed rate loan commitments. MSRs, at Fair Value The MSRs which we measure at fair value are subject to substantial interest rate risk as the mortgage loans underlying the MSRs permit the borrowers to prepay the loans. Therefore, the value of these MSRs generally tends to diminish in periods of declining interest rates (as prepayments increase) and increase in periods of rising interest rates (as prepayments decrease). Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards and product characteristics. Effective April 1, 2013, we terminated our hedging program for fair value MSRs. Prior to their termination, we used economic hedges including interest rate swaps, U.S. Treasury futures and forward contracts to minimize the effects of loss in value of these MSRs associated with increased prepayment activity that generally results from declining interest rates. We may enter into economic hedges including interest rate swaps, U.S. Treasury futures and forward contracts to minimize the effects of loss in value of these MSRs associated with increased prepayment activity that generally results from declining interest rates. These interest rate swap agreements generally require that we pay a variable interest rate based on LIBOR and receive a fixed rate. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specific price, with delivery or settlement at a specified date. Forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of financial instruments at a specified price, with delivery and settlement at a specified date. Asset Acquisitions In March 2013, we entered into an interest rate swap to hedge the impact on cash flows of changes in the purchase price to be paid for MSRs acquired in the Ally MSR Transaction. This purchase was forecasted to occur in stages with the purchase price subject to adjustment based on changes in the 10-year swap rate between the date of the MSR purchase agreement and the date of each closing. We entered into an interest rate swap with a notional amount sufficient to yield changes in the fair value of the interest rate swap in response to changes in the swap rate that were essentially equal to and offsetting to changes in the purchase price of the MSRs. We designated the swap as a hedge for accounting purposes. We completed the transaction in April 2013 and terminated the swap agreement at the same time. See Note 9 — Mortgage Servicing for additional information regarding the Ally MSR Transaction. The following summarizes our open derivative positions at December 31, 2013 and the gains (losses) on those derivatives for the year then ended. None of the derivatives was designated as a hedge for accounting purposes at December 31, 2013:
Purpose |  | Expiration Date |  | Notional Amount |  | Fair Value (1) |  | Gains / (Losses) |  | Consolidated Statement of Operations Caption
Hedge the effect of changes in interest rates on interest expense on borrowings |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate caps |  |  |  |  |  |  |  |  |  |  |  |  |
Hedge the effect of changes in 1ML on advance funding facilities |  | 2016 |  | $ | 1,868,000 |  |  | $ | 442 |  |  | $ | 56 |  |  | Other, net
Interest rate risk of mortgage loans held for sale and of IRLCs |  |  |  |  |  |  |  |  |  |  |  |  |
Forward MBS trades |  | 2014 |  | 950,648 |  |  | 6,905 |  |  | 42,732 |  |  | Gain on loans held for sale, net
IRLCs |  | 2014 |  | 751,436 |  |  | 8,433 |  |  | 523 |  |  | Gain on loans held for sale, net
Total derivatives |  |  |  |  |  |  | $ | 15,780 |  |  | $ | 43,311 |  |  |
(1) | Derivatives are reported at fair value in Receivables, Other assets or in Other liabilities.
Included in AOCL at December 31, 2013 and December 31, 2012, respectively, were $10.8 million and $9.9 million of deferred unrealized losses, before taxes of $0.7 million and $3.6 million, respectively, on the interest rate swaps that we designated as cash flow hedges. Changes in AOCL during the years ended December 31 were as follows:
| 2013 |  | 2012 |  | 2011
Beginning balance | $ | 6,441 |  |  | $ | 7,896 |  |  | $ | 9,392 |
Additional net losses on cash flow hedges | 12,363 |  |  | 8,315 |  |  | 615 |
Ineffectiveness of cash flow hedges reclassified to earnings | (657 | ) |  | 41 |  |  | (1,393 | )
Losses on terminated hedging relationships amortized to earnings | (10,816 | ) |  | (10,592 | ) |  | (1,544 | )
Net increase (decrease) in accumulated losses on cash flow hedges | 890 |  |  | (2,236 | ) |  | (2,322 | )
(Increase) decrease in deferred taxes on accumulated losses on cash flow hedges | 2,825 |  |  | 786 |  |  | 843 |
Increase (decrease) in accumulated losses on cash flow hedges, net of taxes | 3,715 |  |  | (1,450 | ) |  | (1,479 | )
Other | (5 | ) |  | (5 | ) |  | (17 | )
Ending balance | $ | 10,151 |  |  | $ | 6,441 |  |  | $ | 7,896 |
Amortization of accumulated losses on cash flow hedges from AOCL to Other income (expense), net is projected to be $1.6 million during 2014. Other income (expense), net, includes the following related to derivative financial instruments for the years ended December 31:
| 2013 |  | 2012 |  | 2011
Gains (losses) on economic hedges | (2,861 | ) |  | 7,331 |  |  | (4,488 | )
Ineffectiveness of cash flow hedges | (657 | ) |  | 41 |  |  | (1,393 | )
Write-off of losses in AOCL for a discontinued hedge relationship (1) | (10,816 | ) |  | (4,633 | ) |  | (1,545 | )
Write-off of losses in AOCL for hedge of a financing facility assumed by HLSS (2) | — |  |  | (5,958 | ) |  | — |
| $ | (14,334 | ) |  | $ | (3,219 | ) |  | $ | (7,426 | )
(1) | Includes the write off in 2012 and 2013 of the remaining of unamortized losses when a borrowing under the related advance financing facility was repaid in full, and the facility was terminated.
(2) | See Note 4 — Sales of Advances and MSRs.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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