Quarterly report pursuant to Section 13 or 15(d)

Derivative and Risk Management Activities

v3.21.2
Derivative and Risk Management Activities
 9 Months Ended
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Risk Management Activities
12.
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 mortgage-backed securities 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 September 30, 2021 (Successor) and December 31, 2020 (Predecessor), for the Successor three months ended September 30, 2021, the Successor period from April 1, 2021 to September 30, 2021, and the Predecessor period from January 1, 2021 to March 31, 2021. The Company also had no derivative instruments designated as hedging instruments or subject to master netting
a
nd collateral agreements for the
 
Predecessor for the three months ended and nine months ended September 30, 2020.
The following tables summarize
 
the fair value, notional amount, and unrealized gains (losses) of derivative instruments for the periods indicated (in thousands):
 
    
September 30, 2021
  
    
Successor
  
    
Derivative assets
    
Derivative liabilities
  
    
Fair
value
     
Notional
amount
     
Unrealized
gains
(losses)
    
Fair
value
     
Notional
amount
     
Unrealized
gains
(losses)
  
Interest rate lock commitments
   
$
29,175
     
$
2,865,203
     
$
(58,401
) 
  
$
—  
     
$
—  
     
$
—  
  
Forward commitments, TBAs securities and treasury futures
   
 
974
     
 
2,872,378
     
 
(832
) 
  
 
105
     
 
2,880,000
     
 
1,227
  
Interest rate swaps and futures contracts
   
 
12,607
     
 
1,260,400
     
 
9,924
    
 
10,617
     
 
1,108,700
     
 
(9,862
) 
Forward MBS
   
 
12,237
     
 
2,391,000
     
 
12,238
    
 
1,061
     
 
458,500
     
 
17,574
  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
Net fair value of derivative financial instruments
   
$
54,993
     
$
9,388,981
     
$
(37,071
) 
  
$
11,783
     
$
4,447,200
     
$
8,939
  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
 
    
December 31, 2020
  
    
Predecessor
  
    
Derivative assets
    
Derivative liabilities
  
    
Fair
value
     
Notional
amount
     
Unrealized
gains
(losses)
    
Fair
value
     
Notional
amount
     
Unrealized
gains
(losses)
  
Interest rate lock commitments
    $ 87,576      $ 2,897,479      $ 73,568     $ —        $ 13,822      $ 68  
Forward commitments, TBAs securities and treasury futures
      1,806        399,612        968       1,332        389,422        (1,248 ) 
Interest rate swaps and futures contracts
      2,683        1,386,400        2,324       755        744,500        (617 ) 
Forward MBS
      —          —          (348 )      18,635        3,187,000        (16,587 ) 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
Net fair value of derivative financial instruments
    $ 92,065      $ 4,683,491      $ 76,512     $ 20,722      $ 4,334,744      $ (18,384 ) 
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
     
 
 
  
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 clearing broker to the extent the relative value of its derivatives are above or below their initial strike price. The Company pledged deposits of $8.4 million and $12.0 million as of September 30, 2021 (Successor) and December 31, 2020 (Predecessor), respectively. Total margin collateral is included in other assets, net, in the Company’s Consolidated Statements of Financial Condition.