XML 37 R23.htm IDEA: XBRL DOCUMENT
v3.24.2.u1

Derivative Financial Instruments and Hedging Activities | 6 Months Ended
--- | ---
Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities |
Note 15 – Derivative Financial Instruments and Hedging Activities
The table below summarizes the fair value, notional and maturity of our derivative instruments. The notional amount of our contracts does not represent our exposure to credit loss. None of the derivatives were designated as a hedge for accounting purposes as of or during the six months ended June 30, 2024 and 2023.
|  | June 30, 2024 |  | December 31, 2023
|  | Maturities | Notional | Fair value |  | Maturities | Notional | Fair value
Derivative Assets (Other assets) |  |  |  |  |  |  |  |
Forward sales of Reverse loans |  | July 2024 | $ | 20.0 |  | $ | — |  |  | N/A | $ | — |  | $ | — |
Forward loans IRLCs |  | July - October 2024 | 1,532.4 |  | 3.5 |  |  | January - May 2024 | 592.5 |  | 5.1 |
Reverse loans IRLCs |  | September 2024 | 22.2 |  | 0.6 |  |  | February 2024 | 22.1 |  | 0.6 |
TBA forward MBS trades |  | July - September 2024 | 2,269.7 |  | 7.5 |  |  | January - March 2024 | 1,818.6 |  | 10.1 |
Forward sales of Forward loans |  | N/A | — |  | — |  |  | January 2024 | 5.5 |  | — |
Interest rate swap futures |  | September 2024 | 250.0 |  | 0.5 |  |  | March 2024 | 790.0 |  | 3.9 |
Interest rate option contracts |  | July 2024 | 250.0 |  | 0.2 |  |  | January 2024 | 750.0 |  | 1.9 |
Treasury futures contracts |  | September 2024 | 75.0 |  | 0.1 |  |  | N/A | — |  | — |
Total |  |  | $ | 4,419.2 |  | $ | 12.6 |  |  |  | $ | 3,978.7 |  | $ | 21.6 |
Derivative Liabilities (Other liabilities) |  |  |  |  |  |  |  |
Forward sales of Reverse loans |  | July 2024 | 20.0 |  | — |  |  | January 2024 | 50.0 |  | (0.1) |
TBA forward MBS trades |  | July - August 2024 | 2,110.5 |  | (8.2) |  |  | January - March 2024 | 854.9 |  | (6.8) |
Interest rate swap futures |  | September 2024 | 350.0 |  | (1.5) |  |  | N/A | — |  | — |
Interest rate option contracts |  | July 2024 | 250.0 |  | (0.2) |  |  | N/A | — |  | — |
Other |  | N/A | — |  | — |  |  | N/A | 15.3 |  | (0.1) |
Total |  |  | $ | 2,730.5 |  | $ | (9.9) |  |  |  | $ | 920.2 |  | $ | (7.0) |
The table below summarizes the net gains and losses of our derivative instruments recognized in our consolidated statements of operations.
| Three Months Ended June 30, |  | Six Months Ended June 30, |  | Financial Statement Line
Gain (Loss) | 2024 |  | 2023 |  | 2024 |  | 2023 |
Derivative Instruments |  |  |  |  |  |  |  |  |
Forward loans IRLCs | $ | (1.0) |  |  | $ | (3.2) |  |  | $ | (1.6) |  |  | $ | 2.4 |  |  | Gain on loans held for sale, net
Reverse loans IRLCs | 0.1 |  |  | (0.2) |  |  | 0.1 |  |  | (0.3) |  |  | Gain on reverse loans held for investment and HMBS-related borrowings, net
Forward trades (economically hedging forward pipeline trades and EBO pipeline) | 0.3 |  |  | — |  |  | — |  |  | — |  |  | Gain on loans held for sale, net (Economic hedge)
TBA trades (economically hedging forward pipeline trades and EBO pipeline) | 4.8 |  |  | 21.2 |  |  | 9.7 |  |  | 4.8 |  |  | Gain on loans held for sale, net (Economic hedge)
Interest rate futures, TBA trades and interest rate option contracts (economically hedging MSR) | (50.6) |  |  | (65.2) |  |  | (104.3) |  |  | (51.1) |  |  | MSR valuation adjustments, net
Forward sales of Reverse loans | (0.2) |  |  | — |  |  | 0.1 |  |  | — |  |  | Gain on reverse loans held for investment and HMBS-related borrowings, net
Other | — |  |  | — |  |  | — |  |  | 0.3 |  |  | Other, net
Total | $ | (46.7) |  |  | $ | (47.4) |  |  | $ | (96.0) |  |  | $ | (44.0) |  |  |
Interest Rate Risk MSR Hedging MSRs are carried at fair value with changes in fair value being recorded in earnings in the period in which the changes occur. The fair value of MSRs is subject to changes in market interest rates among other inputs and assumptions. The objective of our MSR interest rate risk management and hedging policy is to protect shareholders’ equity and earnings against the fair value volatility of interest-rate sensitive MSR portfolio exposure, considering market, liquidity, cost and other conditions. The interest-rate sensitive MSR portfolio exposure is defined as follows: •Agency MSR portfolio, •expected Agency MSR bulk transactions subject to letters of intent (LOI), •less the Agency MSRs subject to our sale agreements with MAV, Rithm and others, also referred to as Pledged MSR liabilities (See Note 8 — Other Financing Liabilities, at Fair Value), •less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings, •other interest-rate sensitive exposures, including our ESS financing liabilities, as deemed appropriate by the Market Risk Committee. The hedge coverage ratio, defined as the ratio of hedge and asset rate sensitivity (referred to as DV01) is subject to lower and upper target thresholds under our policy. We regularly evaluate the hedge coverage ratio at the intended shock interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, liquidity impacts under shock scenarios and other factors. As the market dictates, management may choose to maintain the hedge coverage ratio at different thresholds, with approval of the Market Risk Committee, in order to preserve liquidity and/or optimize asset returns. Effective September 2022, a minimum 25% and 30% hedge coverage ratios were required for interest rate declines less than, and more than 50 basis points, respectively. During the second quarter of 2023, management raised its minimum hedge coverage ratio to 60%. Effective December 2023, we established a targeted hedge coverage ratio range between 95% and 105%. In April 2024, we changed the risk measure to a dollar DV01 that resulted in an equivalent range of approximately 90% to 110%. With a partial hedge coverage ratio, the changes in fair value of our hedging instruments may not fully offset the changes in fair value of our net MSR portfolio exposure attributable to interest rate changes. In addition, while DV01 measures may remain within the range of our hedging strategy’s objective, actual changes in fair value of the derivatives and MSR portfolio may not offset to the same extent, due to many factors. These factors include non-parallel changes in the interest rate curve, the convexity of the MSR, the basis risk inherent in the MSR profile and hedging instruments, model risk observed between actual vs. expected fair value changes, and hedge costs. We continuously evaluate the use of hedging instruments with the objective of enhancing the effectiveness of our interest rate hedging strategy. Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties, exchange-traded interest rate futures and interest rate options. These derivative instruments are not designated as accounting hedges. TBAs, or To-Be-Announced securities, are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. From time-to-time, we enter into exchange-traded options contracts with purchased put options financed by written call options. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment. We may, from time to time, establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to minimize the use of third-party derivatives. The fair value gains and losses of such inter-segment derivatives effectively reclassify certain derivative gains and losses between MSR valuation adjustments, net within the Servicing segment and Gain on loans held for sale, net within the Originations segment to reflect the performance of these economic hedging strategies in the appropriate segments (see Note 18 – Business Segment Reporting for the amount of such reclassification). Such inter-segment derivatives are eliminated in our consolidated financial statements. The derivative instruments are subject to margin requirements, posted as either initial or variation margin. Onity may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value changes of the instruments. Changes in market factors, including interest rates, and our credit rating may require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity. Pipeline Hedging - Interest Rate Lock Commitments and Loans Held for Sale, at Fair Value In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale or securitization of the resulting loan into the secondary mortgage market. Loan commitments for forward loans generally range from 5 to 75 days, with the majority of our commitments to borrowers for 40 to 60 days and our commitments to correspondent sellers for 5 to 30 days. Loans held for sale are generally funded and sold within 5 to 30 days. This interest rate exposure of loans and IRLCs is economically hedged with derivative instruments, including forward sales of Agency TBAs. The objective of our pipeline hedging strategy is to reduce the volatility of the fair value of IRLCs and loans due to market interest rates, thus preserving the initial gain on sale margin at lock date. We report changes in fair value of these derivative instruments as gain or loss on economic hedge instruments within either Gain on loans held for sale, net or Gain on reverse loans held for investment and HMBS-related borrowings, net in our consolidated statements of operations.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration