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Derivative Financial Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Hedging Activities
Note 17 — 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 manage counterparty credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties and the use of mutual margining agreements whenever possible to limit potential exposure. We regularly evaluate the financial position and creditworthiness of our counterparties. 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, 2015: 
 
IRLCs
 
Forward MBS Trades
 
Interest Rate Caps
 
Interest Rate Swaps
Beginning notional balance
$
239,406

 
$
703,725

 
$
1,729,000

 
$
—

Additions
5,293,280

 
7,887,651

 
2,261,000

 
450,000

Amortization
—

 
—

 
(1,880,000
)
 
—

Maturities
(4,773,676
)
 
(4,371,218
)
 
—

 
—

Terminations
(480,693
)
 
(3,587,438
)
 
—

 
(450,000
)
Ending notional balance
$
278,317

 
$
632,720

 
$
2,110,000

 
$
—

 
 
 
 
 
 
 
 
Fair value of derivative assets (liabilities) at:
 

 
 

 
 

 
 

December 31, 2015
$
6,080

 
$
295

 
$
2,042

 
$
—

December 31, 2014
$
6,065

 
$
(2,854
)
 
$
567

 
$
—

 
 
 
 
 
 
 
 
Maturity
Dec. 2015 - Mar. 2016
 
Feb. 2016 - Mar 2016
 
Nov. 2016 - Dec. 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 originations and commitments and expected time to sell.
Foreign Currency Exchange Rate Risk Management
Our operations in India 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
As required by certain of our advance financing arrangements, we have purchased interest rate caps to minimize future interest rate exposure from increases in the interest on our variable rate debt as a result of increases in the index, such as 1ML, that is used in determining the interest rate on the debt. We currently do not hedge our fixed rate debt.
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 both fixed and variable rate loan commitments.
The following summarizes our open derivative positions at December 31, 2015 and the gains (losses) on all derivatives used in each of the identified economic hedging programs for the year then ended. None of the derivatives was designated as a hedge for accounting purposes at December 31, 2015:
Purpose
 
Expiration Date
 
Notional Amount
 
Asset (Liability) at Fair Value (1)
 
Gains (Losses)
 
Consolidated Statement of Operations Caption
Interest rate risk of borrowings













Interest rate caps (2)

Nov. 2016 - Dec. 2017

$
2,110,000

 
$
2,042

 
$
(1,377
)
 
Other, net
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk of mortgage loans held for sale and of IRLCs
 
 
 
 

 
 

 
 

 
 
Forward MBS trades
 
Feb. 2016 - Mar 2016
 
632,720

 
295

 
(8,675
)
 
Gain on loans held for sale, net
 
 
 
 
 
 
 
 
 
 
 
IRLCs
 
Dec. 2015 - Mar. 2016
 
278,317

 
6,080

 
14

 
Gain on loans held for sale, net
Total derivatives
 
 
 


 
$
8,417

 
$
(10,038
)
 
 

(1)
Derivatives are reported at fair value in Receivables, Other assets or in Other liabilities on our Consolidated Balance Sheets.
(2)
To hedge the effect of increases in the interest on our variable rate debt as a result of increases in the index, such as 1ML, that is used in determining the interest rate on our variable rate advance funding facilities.
Included in AOCL at December 31, 2015 and 2014, respectively, were $1.7 million and $8.8 million of deferred unrealized losses, before taxes of $0.1 million and $0.5 million, respectively, on interest rate swaps that we had designated as cash flow hedges. Changes in AOCL during the years ended December 31 were as follows:
 
2015
 
2014
 
2013
Beginning balance
$
8,413


$
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
(7,042
)

(1,982
)

(10,816
)
Net (decrease) increase in accumulated losses on cash flow hedges
(7,042
)
 
(1,982
)
 
890

Decrease in deferred taxes on accumulated losses on cash flow hedges
392

 
248

 
2,825

(Decrease) increase in accumulated losses on cash flow hedges, net of taxes
(6,650
)
 
(1,734
)
 
3,715

 
 
 
 
 
 
Other, net of taxes
—

 
(4
)
 
(5
)
 
 
 
 
 
 
Ending balance
$
1,763

 
$
8,413

 
$
10,151

As of December 31, 2015, amortization of accumulated losses on cash flow hedges from AOCL to Other income (expense), net is projected to be $0.2 million during 2016. 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 years ended December 31:
 
2015

2014

2013
Losses on economic hedges
(1,377
)

(661
)

(2,861
)
Ineffectiveness of cash flow hedges
—


—


(657
)
Write-off of losses in AOCL for a discontinued hedge relationship (1)
(7,042
)

(1,982
)

(10,816
)
 
$
(8,419
)

$
(2,643
)

$
(14,334
)

(1)
Includes: (a) the accelerated write-off in 2015 of deferred losses on a swap, that had been designated for accounting purposes as a hedge of the purchase price of an MSR acquisition, when we sold a portion of the related MSRs; and (b) the write-off in 2013 of the remaining unamortized losses on a swap, that had been designated as a hedge for accounting purposes, when the borrowings under the related advance financing facility were repaid in full and the facility was terminated.