Quarterly report pursuant to Section 13 or 15(d)

Derivative and Risk Management Activities

v3.22.2
Derivative and Risk Management Activities
 6 Months Ended
Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Risk Management Activities
11.
Derivative and Risk Management Activities
The Company’s principal market exposure is to interest rate risk, specifically long-term U.S. Treasury and mortgage interest rates, due to their impact on mortgage-related assets and commitments. The Company is also subject to changes in short-term interest rates, such as LIBOR, due to their impact on certain variable rate asset-backed debt such as warehouse lines of credit. Various financial instruments are used to manage and reduce this risk, including forward delivery commitments on MBS or whole loans and interest rate swaps.

 
The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of June 30, 2022 and December 31, 2021.
The following tables summarize the fair value and notional amount of derivative instruments (in thousands):
 
    
June 30, 2022
  
    
Derivative assets
     
Derivative liabilities
  
    
Fair value
     
Notional

amount
     
Fair value
     
Notional

amount
  
IRLCs and LPCs
   
$
14,126
 
   
$
1,315,810
 
   
$
—  
 
   
$
—  
 
Forward MBS and TBAs
   
 
4,258
 
   
 
696,000
 
   
 
7,530
 
   
 
694,500
 
Interest rate swaps and futures contracts
   
 
36,802
 
   
 
1,369,300
 
   
 
2,183
 
   
 
504,300
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Total fair value and notional amount
   
$
55,186
 
   
$
3,381,110
 
   
$
9,713
 
   
$
1,198,800
 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
46
 
    
December 31, 2021
  
    
Derivative assets
     
Derivative liabilities
  
    
Fair value
     
Notional

amount
     
Fair value
     
Notional

amount
  
IRLCs and LPCs
    $ 24,786      $ 2,095,238      $ —        $ —    
Forward MBS and TBAs
      1,250        948,000        1,685        1,515,000  
Interest rate swaps and futures contracts
      22,834        11,977,300        24,993        12,193,100  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total fair value and notional amount
    $ 48,870      $ 15,020,538      $ 26,678      $ 13,708,100  
    
 
 
     
 
 
     
 
 
     
 
 
  
The follow table details the gains/(losses) on derivative instruments (in thousands):
 
    
For the three

months ended

June 30, 2022
     
For the six

months ended

June 30, 2022
    
For the three

months ended

June 30, 2021
     
For the three

months ended

March 31, 2021
  
Derivative activity
   
Successor
     
Predecessor
  
IRLCs and LPCs
   
$
10,017
 
   
$
(10,660
) 
   $ (3,536 )     $ (49,557 ) 
Forward MBS and TBAs
     
94,350
 
     
210,967
 
     (40,289 )       113,331  
Interest rate swaps and futures contracts
     
67,814
 
     
239,543
 
     (37,383 )       43,935  
The Company is exposed to risk in the event of nonperformance by counterparties in their derivative contracts. In general, the Company manages such risk by evaluating the financial position and creditworthiness of counterparties, monitoring the amount of exposure and/or dispersing the risk among multiple counterparties. While the Company does not presently have master netting arrangements with its derivative counterparties, it does either maintain or deposit cash as margin collateral with its counterparties to the extent the relative value of its derivatives are above or below their initial strike price. The Company held collateral from its counterparties of $67.1 million as of June 30, 2022 and had provided collateral to its counterparties of $23.2 million as of December 31, 2021. Margin collateral is included in other assets, net, when in a receivable position or in payables and other liabilities when in a payable position in the Company’s Condensed Consolidated Statements of Financial
Condition.