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Financial Instruments

6 Months Ended

Jun. 30, 2020

Derivatives

Our primary market exposure is to interest rate risk, specifically U.S. treasury and mortgage interest rates, due to their impact on mortgage-related assets and commitments. We use forward sales commitments on whole loans and mortgage-backed securities to manage and reduce this risk. We do not have any derivative instruments designated as hedging instruments.

Interest Rate Lock Commitments—Interest rate lock commitments ("IRLCs") represent an agreement to extend credit to a mortgage loan applicant. We commit (subject to loan approval) to fund the loan at the specified rate, regardless of changes in market interest rates between the commitment date and the funding date. Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of commitment through the loan funding date or expiration date. Loan commitments generally range between 30 and 90 days and the borrower is not obligated to obtain the loan. Therefore, IRLCs are subject to fallout risk, which occurs when approved borrowers choose not to close on the underlying loans. We review our commitment-to-closing ratio (pull-through rate) as part of an estimate of the number of mortgage loans that will fund according to the IRLCs.

Forward Sales Commitments—We are exposed to interest rate and price risk on loans held for sale from the funding date until the date the loan is sold. Forward sales commitments on whole loans and mortgage-backed securities are used to fix the forward sales price that will be realized at the sale of each loan.


Notional Amounts	June 30, 2020		December 31, 2019
Interest rate lock commitments	$	72,641	$	37,453
Forward sales commitments	113,573		39,447

The locations and amounts of gains (losses) recognized in income related to our derivatives are as follows:


		Three Months Ended June 30,						Six Months Ended June 30,
Instrument	Classification	2020		2019		2020		2019
Interest rate lock commitments	Service revenue	$	(142)	$	(11)	$	1,053	$	435
Forward sales commitments	Service revenue	1,460		3		(110)		241

Fair Value of Financial Instruments

A summary of assets and liabilities related to our financial instruments, measured at fair value on a recurring basis and as reflected in our consolidated balance sheets, is set forth below:


	Balance at June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market funds	$	310,115	$	310,115	$	—	$	—
U.S. treasury securities	4,300		4,300		—		—
Total cash equivalents	314,415		314,415		—		—
Short-term investments
U.S. treasury securities	128,056		128,056		—		—
Loans held for sale	42,439		—		42,439		—
Prepaid expenses and other current assets
Interest rate lock commitments	1,835		—		—		1,835
Forward sales commitments	45		—		45		—
Total prepaid expenses and other current assets	1,880		—		45		1,835
Long-term investments
U.S. treasury securities	13,783		13,783		—		—
Agency bonds	5,009		5,009		—		—
Total long-term investments	18,792		18,792		—		—
Total assets	$	505,582	$	461,263	$	42,484	$	1,835
Liabilities
Accrued liabilities
Interest rate lock commitments	$	42	$	—	$	—	$	42
Forward sales commitments	498		—		498		—
Total liabilities	$	540	$	—	$	498	$	42


	Balance at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market funds	$	221,442	$	221,442	$	—	$	—
Short-term investments
U.S. treasury securities	70,029		70,029		—		—
Loans held for sale	21,985		—		21,985		—
Prepaid expenses and other current assets
Interest rate lock commitments	496		—		—		496
Forward sales commitments	4		—		4		—
Total prepaid expenses and other current assets	500		—		4		496
Long-term investments
U.S. treasury securities	30,978		30,978		—		—
Total assets	$	344,934	$	322,449	$	21,989	$	496
Liabilities
Accrued liabilities
Interest rate lock commitments	$	58	$	—	$	—	$	58
Forward sales commitments	57		—		57		—
Total liabilities	$	115	$	—	$	57	$	58

The significant unobservable input used in the fair value measurement of IRLCs is the pull-through rate. Significant changes in the input could result in a significant change in fair value measurement.

The following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

Key Inputs

Valuation Technique

June 30, 2020

December 31, 2019

Weighted-average pull-through rate

Market pricing

73.6%

78.2%

The following is a summary of changes in the fair value of IRLCs for the period ended June 30, 2020:


Balance, net—January 1, 2020	$	430
Issuances of interest rate lock commitments	7,527
Settlements of interest rate lock commitments	(6,629)
Net gain recognized in earnings	155
Balance, net—June 30, 2020	$	1,483

Changes in fair value recognized during the period relating to assets still held at June 30, 2020	$	1,053

There were no transfers into or out of Level 3 financial instruments during the period.

See Note 15 for the carrying amount and estimated fair value of our convertible senior notes.

See Note 11 for the carrying amount of our convertible preferred stock.

Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as property and equipment, goodwill and other intangible assets, cost method investments, and other assets. These assets are measured at fair value if determined to be impaired. During the three months ended March 31, 2020, we determined that the fair value of one of our cost method investment in a privately-held company was less than the carrying value of $2,000 based on a variety of impairment indicators, including the historical performance and future prospects of the company; therefore, we recognized a non-cash impairment charge of $1,420 related to this investment. The impairment charge is included in Impairment costs within our consolidated statement of cash flows and is included in Other income (expense), net within our consolidated statements of operations. We did not record any other significant nonrecurring fair value measurements after initial recognition for the period ended June 30, 2020.

The following table summarizes the cost or amortized cost, gross unrealized gains and losses, and estimated fair market value of our cash, money market funds, restricted cash, and available-for-sale investments.


	June 30, 2020
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	10,937	$	—	$	—	$	10,937	$	10,937	$	—	$	—
Money markets funds	310,115		—		—		310,115		310,115		—		—
Restricted cash	35,102		—		—		35,102		35,102		—		—
U.S. treasury securities	145,718		421		—		146,139		4,300		128,056		13,783
Agency bonds	5,000		9		—		5,009		—		—		5,009
Total	$	506,872	$	430	$	—	$	507,302	$	360,454	$	128,056	$	18,792


	December 31, 2019
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	13,237	$	—	$	—	$	13,237	$	13,237	$	—	$	—
Money markets funds	221,442		—		—		221,442		221,442		—		—
Restricted cash	12,769		—		—		12,769		12,769		—		—
U.S. treasury securities	100,998		31		(22)		101,007		—		70,029		30,978
Total	$	348,446	$	31	$	(22)	$	348,455	$	247,448	$	70,029	$	30,978

As of June 30, 2020 and December 31, 2019, the aggregate fair value of available-for-sale debt securities in an unrealized loss position totaled $0 and $46,550, with aggregate unrealized losses of $0 and $22, respectively. We have evaluated our portfolio of available-for-sale debt securities based on credit quality indicators for expected credit losses and do not believe there are any expected credit losses. Our portfolio consists of U.S. government securities, all with a high quality credit rating issued by various credit agencies.

As of June 30, 2020 and December 31, 2019, we had accrued interest of $149 and $183, respectively, on our available-for-sale investments, of which we have recorded no expected credit losses. Accrued interest receivable is presented within other current assets in our consolidated balance sheets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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