5. Derivative Financial Instruments

The Company uses forward commitments in hedging the interest rate risk exposure on its fixed and adjustable rate commitments. The Company’s derivative instruments are not designated as hedging instruments, and therefore, changes in fair value are recorded in current period earnings. Hedging gains and losses are included in loan origination fees and gain on sale, net in the Condensed Consolidated Statements of Income (Loss).

Net hedging gains were as follows for the three and nine months ended September 30, 2020 and 2019:

Notional and Fair Value

The notional and fair value of derivative financial instruments not designated as hedging instruments were as follows at September 30, 2020 and December 31, 2019:

The Company had an additional $855.2 million and $427.7 million of outstanding forward contracts and mandatory sell commitments, comprised of closed loans with equal and offsetting unpaid principal balance (“UPB”) amounts allocated to them, at September 30, 2020 and December 31, 2019, respectively. The Company also had $454.2 million and $376.5 million in closed hedge instruments not yet settled at September 30, 2020 and December 31, 2019, respectively. See Note 2 for fair value disclosure of the derivative instruments.

The following table presents the quantitative information about IRLCs and the fair value measurements as of September 30, 2020 and December 31, 2019:

Counterparty agreements for forward commitments contain master netting agreements. The master netting agreements contain a legal right to offset amounts due to and from the same counterparty. Derivative assets in the Condensed Consolidated Balance Sheets represent derivative contracts in a gain position net of loss positions with the same counterparty and, therefore, also represent the Company’s maximum counterparty credit risk. The Company incurred no credit losses due to nonperformance of any of its counterparties during the three and nine months ended September 30, 2020 and 2019.