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Derivative Financial Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2016
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 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 nine months ended September 30, 2016:
| IRLCs |  | Forward MBS Trades |  | Interest Rate Caps
Beginning notional balance | $ | 278,317 |  |  | $ | 632,720 |  |  | $ | 2,110,000 |
Additions | 5,200,747 |  |  | 4,210,788 |  |  | 625,000 |
Amortization | — |  |  | — |  |  | (700,000 | )
Maturities | (3,879,488 | ) |  | (1,994,649 | ) |  | — |
Terminations | (1,109,562 | ) |  | (2,122,842 | ) |  | (975,000 | )
Ending notional balance | $ | 490,014 |  |  | $ | 726,017 |  |  | $ | 1,060,000 |
Maturity | Oct. 2016 - Jan. 2017 |  | Dec. 2016 |  | Nov. 2016 - July 2018
Fair value of derivative assets (liabilities) at: |  |  |  |  |  |  |  |
September 30, 2016 | $ | 10,827 |  |  | $ | (2,525 | ) |  | $ | 793 |
December 31, 2015 | $ | 6,080 |  |  | $ | 295 |  |  | $ | 2,042 |
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. Interest Rate Risk 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 1-month LIBOR, 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 September 30, 2016 and the gains (losses) on all derivatives used in each of the identified hedging programs for the period then ended. None of the derivatives was designated as a hedge for accounting purposes at September 30, 2016:
Purpose | Expiration Date |  | Notional Amount |  | Fair Value (1) |  | Gains / (Losses) |  | Consolidated Statements of Operations Caption
Interest rate risk of borrowings |  |  |  |  |  |  |  |  |  |  |  |
Interest rate caps | Nov. 2016 - July 2018 |  | $ | 1,060,000 |  |  | $ | 793 |  |  | $ | (1,950 | ) |  | Other, net
Interest rate risk of mortgage loans held for sale and of IRLCs |  |  |  |  |  |  |  |  |
Forward MBS trades | Dec. 2016 |  | 726,017 |  |  | (2,525 | ) |  | (25,677 | ) |  | Gain on loans held for sale, net
IRLCs | Oct. 2016 - Jan. 2017 |  | 490,014 |  |  | 10,827 |  |  | 4,148 |  |  | Gain on loans held for sale, net
Total derivatives |  |  |  |  |  | $ | 9,095 |  |  | $ | (23,479 | ) |  |
(1) | Derivatives are reported at fair value in Other assets or in Other liabilities on our Unaudited Consolidated Balance Sheets.
Included in Accumulated other comprehensive loss (AOCL) at September 30, 2016 and 2015, respectively, were $1.5 million and $1.9 million of deferred unrealized losses, before taxes of $0.1 million and $0.1 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:
| 2016 |  | 2015
Beginning balance | $ | 1,763 |  |  | $ | 8,413 |
Losses on terminated hedging relationships amortized to earnings | (263 | ) |  | (6,916 | )
Decrease in deferred taxes on accumulated losses on cash flow hedges | — |  |  | 389 |
Decrease in accumulated losses on cash flow hedges, net of taxes | (263 | ) |  | (6,527 | )
Ending balance | $ | 1,500 |  |  | $ | 1,886 |
As of September 30, 2016, amortization of accumulated losses on cash flow hedges from AOCL to Other income (expense), net is projected to be $0.3 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 is recognized in earnings at that time. Other income (expense), net, includes the following related to derivative financial instruments for the periods ended September 30:
| Three Months |  | Nine Months
| 2016 |  | 2015 |  | 2016 |  | 2015
Losses on economic hedges | $ | (45 | ) |  | $ | (738 | ) |  | $ | (1,950 | ) |  | $ | (1,613 | )
Write-off of losses in AOCL for a discontinued hedge relationship | (89 | ) |  | (523 | ) |  | (263 | ) |  | (6,916 | )
| $ | (134 | ) |  | $ | (1,261 | ) |  | $ | (2,213 | ) |  | $ | (8,529 | )

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