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Derivative Financial Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Hedging Activities
Note 13 – 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 three months ended March 31, 2015: 
 
IRLCs
 
Forward MBS Trades
 
Interest Rate Caps
Interest Rate Swaps
Beginning notional balance
$
239,406

 
$
703,725

 
$
1,729,000

$
—

Additions
1,288,957

 
2,481,134

 


450,000

Amortization


 
69,773

 
(102,000
)
—

Maturities
(964,465
)
 
(1,121,701
)
 


—

Terminations
(144,390
)
 
(1,349,218
)
 


(450,000
)
Ending notional balance
$
419,508

 
$
783,713

 
$
1,627,000

$
—

 
 
 
 
 
 
 
Fair value of derivative assets (liabilities) at:
 

 
 

 
 

 

March 31, 2015
$
9,516

 
$
(5,249
)
 
$
203

$
—

December 31, 2014
$
6,065

 
$
(2,854
)
 
$
567

$
—

 
 
 
 
 
 
 
Maturity
Apr. 2015 - Jun. 2015
 
May 2015 - June 2015
 
Nov. 2016 - Oct. 2017
N/A

(1)
As loans are originated and sold or as loan commitments expire, our forward MBS trade positions mature and are replaced by new positions based upon new loan commitments and originations and expected time to sell.
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 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
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 that 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
A 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 and variable rate loan commitments.
The following summarizes our open derivative positions at March 31, 2015 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 March 31, 2015:
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 - Oct. 2017

$
1,627,000

 
$
203

 
$
(364
)
 
Other, net
Interest rate risk of mortgage loans held for sale and of IRLCs
 
 
 
 
 
 
 
 
 
 
Forward MBS trades
 
May 2015 - June 2015
 
783,713

 
(5,249
)
 
(427
)
 
Gain on loans held for sale, net
IRLCs
 
April 2015 - June 2015
 
419,508

 
9,516

 
(2,233
)
 
Gain on loans held for sale, net
Total derivatives
 
 
 


 
$
4,470

 
$
(3,024
)
 
 

(1)
Derivatives are reported at fair value in Receivables, Other assets or in Other liabilities on our unaudited Consolidated Balance Sheets.
Included in AOCL at March 31, 2015 and 2014, respectively, were $8.3 million and $10.0 million of deferred unrealized losses, before taxes of $0.5 million and $0.6 million, respectively, on interest rate swaps that we designated as cash flow hedges. Changes in AOCL during the three months ended March 31 were as follows:
 
2015
 
2014
Beginning balance
$
8,413


$
10,151

 
 
 
 
Losses on terminated hedging relationships amortized to earnings
(443
)

(779
)
Decrease in deferred taxes on accumulated losses on cash flow hedges
25

 
171

Decrease in accumulated losses on cash flow hedges, net of taxes
(418
)
 
(608
)
 
 
 
 
Other, net of taxes
—

 
(1
)
Ending balance
$
7,995

 
$
9,542


As of March 31, 2015, amortization of accumulated losses on cash flow hedges from AOCL to Other income (expense), net is projected to be $1.9 million during the next twelve months. To the extent we sell the MSRs to which the accumulated losses on cash flow hedges applied, a proportionate amount of the remaining unamortized accumulated losses associated with the MSRs sold will be recognized in earnings at that time.
Other income (expense), net, includes the following related to derivative financial instruments for the three months ended March 31:
 
2015

2014
Losses on economic hedges
$
(710
)

$
(141
)
Write-off of losses in AOCL for a discontinued hedge relationship
(443
)

(779
)
 
$
(1,153
)

$
(920
)