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Derivative Financial Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Note 15 – 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 nine months ended September 30, 2014:
| IRLCs |  | Forward MBS Trades |  | Interest Rate Caps
Beginning notional balance | $ | 751,436 |  |  | $ | 950,648 |  |  | $ | 1,868,000 |
Additions | 3,795,311 |  |  | 6,951,828 |  |  | 100,000 |
Amortization | 94,571 |  |  | — |  |  | (490,000 | )
Maturities | (3,298,265 | ) |  | (3,379,589 | ) |  | — |
Terminations | (876,254 | ) |  | (3,762,592 | ) |  | — |
Ending notional balance | $ | 466,799 |  |  | $ | 760,295 |  |  | $ | 1,478,000 |
Fair value of derivative assets (liabilities) at: |  |  |  |  |  |  |  |
September 30, 2014 | $ | 6,117 |  |  | $ | (1,089 | ) |  | $ | 91 |
December 31, 2013 | $ | 8,433 |  |  | $ | 6,905 |  |  | $ | 442 |
Maturity | Nov. 2014 - Jan. 2014 |  | Nov. 2014 - Dec. 2014 |  | Nov. 2016
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 terminated our 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. As required by certain of our advance financing arrangements, we have purchased interest rate caps to minimize future interest rate exposure from increases in one-month LIBOR interest rates. 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 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 Effective April 1, 2013, we terminated our hedging program for fair value MSRs. Prior to the 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. The following summarizes our open derivative positions at September 30, 2014 and the gains (losses) on all derivatives used in each of the identified hedging programs for the year to date period then ended. None of the derivatives was designated as a hedge for accounting purposes at September 30, 2014:
Purpose |  | Expiration Date |  | Notional Amount |  | Fair Value (1) |  | Gains / (Losses) |  | Consolidated Statements 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 |  | Nov. 2016 |  | $ | 1,478,000 |  |  | $ | 91 |  |  | $ | (374 | ) |  | Other, net
Interest rate risk of mortgage loans held for sale and of IRLCs |  |  |  |  |  |  |  |  |  |
Forward MBS trades |  | Nov. 2014 - Dec. 2014 |  | 760,295 |  |  | (1,089 | ) |  | (32,183 | ) |  | Gain on loans held for sale, net
IRLCs |  | Nov. 2014 - Jan. 2014 |  | 466,799 |  |  | 6,117 |  |  | (2,315 | ) |  | Gain on loans held for sale, net
Total derivatives |  |  |  |  |  |  | $ | 5,119 |  |  | $ | (34,872 | ) |  |
(1) | Derivatives are reported at fair value in Receivables, Other assets and Other liabilities on our unaudited Consolidated Balance Sheet.
Included in AOCL at September 30, 2014 and September 30, 2013, respectively, were $9.2 million and $12.2 million of deferred unrealized losses, before taxes of $0.5 million and $4.5 million, respectively, on interest rate swaps that we designated as cash flow hedges. Changes in AOCL during the nine months ended September 30 were as follows:
| 2014 |  | 2013
Beginning balance | $ | 10,151 |  |  | $ | 6,441 |
Additional net losses on cash flow hedges | — |  |  | 12,363 |
Ineffectiveness of cash flow hedges reclassified to earnings | — |  |  | (657 | )
Losses on terminated hedging relationships amortized to earnings | (1,579 | ) |  | (9,434 | )
Net increase (decrease) in accumulated losses on cash flow hedges | (1,579 | ) |  | 2,272 |
Decrease (increase) in deferred taxes on accumulated losses on cash flow hedges | 217 |  |  | (933 | )
(Decrease) increase in accumulated losses on cash flow hedges, net of taxes | (1,362 | ) |  | 1,339 |
Other, net of taxes | (5 | ) |  | (711 | )
Ending balance | $ | 8,784 |  |  | $ | 7,069 |
Projected amortization of deferred unrealized losses from AOCL to earnings during the coming twelve months is $1.6 million. Other income (expense), net, includes the following related to derivative financial instruments for the three and nine months ended September 30:
| Three Months |  | Nine Months
| 2014 |  | 2013 |  | 2014 |  | 2013
Losses on economic hedges | $ | (6 | ) |  | $ | (103 | ) |  | $ | (374 | ) |  | $ | (3,822 | )
Ineffectiveness of cash flow hedges | — |  |  | — |  |  | — |  |  | (657 | )
Write-off of losses in AOCL for a discontinued hedge relationship | (408 | ) |  | (7,780 | ) |  | (1,580 | ) |  | (9,434 | )
| $ | (414 | ) |  | $ | (7,883 | ) |  | $ | (1,954 | ) |  | $ | (13,913 | )

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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 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: 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 3: 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 4: 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 5: 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 6: 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 7: 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 8: 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 9: 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 10: 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 11: 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 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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