Derivative and Risk Management Activities
|3 Months Ended|
Mar. 31, 2022
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
|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 March 31, 2022 and December 31, 2021.
The following tables summarize the fair value, notional amount, and unrealized gains (losses) of derivative instruments (in thousands) for the periods indicated:
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 held deposits from its clearing broker of $163.4 million as of March 31, 2022 and had provided deposits to its clearing broker of $23.2 million as of December 31, 2021. Total margin collateral is included in other assets, net, when in a net receivable position or in payables and other liabilities when in a net payable position in the Company’s Condensed Consolidated Statements of Financial Condition.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef