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Financial Instruments

9 Months Ended

Sep. 30, 2022

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.

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.

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.


Notional Amounts	September 30, 2022		December 31, 2021
Forward sales commitments	$	476,903	$	70,550
IRLCs	390,091		67,485

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


		Three Months Ended September 30,				Nine Months Ended September 30,
Instrument	Classification	2022		2021		2022		2021
Forward sales commitments	Service revenue	$	11,602	$	859	$	1,757	$	938
IRLCs	Service revenue	(8,462)		(888)		(4,433)		(687)

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 September 30, 2022		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	$	294,396	$	294,396	$	—	$	—


Total cash equivalents	294,396		294,396		—		—
Short-term investments
U.S. treasury securities	87,313		87,313		—		—
Agency bonds	23,003		23,003		—		—
Total short-term investments	110,316		110,316		—		—
Loans held for sale	256,339		—		256,339		—
Other current assets
Forward sales commitments	13,153		—		13,153		—
IRLCs	5,764		—		—		5,764
Total other current assets	18,917		—		13,153		5,764
Mortgage servicing rights, at fair value	36,914		—		—		36,914
Long-term investments
U.S. treasury securities	41,677		41,677		—		—

Total assets	$	758,559	$	446,389	$	269,492	$	42,678
Liabilities
Accrued and other liabilities
Forward sales commitments	$	263	$	—	$	263	$	—
IRLCs	4,716		—		—		4,716
Total liabilities	$	4,979	$	—	$	263	$	4,716


	Balance at December 31, 2021		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	$	509,971	$	509,971	$	—	$	—

Total cash equivalents	509,971		509,971		—		—
Short-term investments
U.S. treasury securities	16,718		16,718		—		—
Agency bonds	11,906		11,906		—		—
Equity securities	5,113		5,113		—		—
Loans held for sale	35,759		—		35,759		—
Other current assets
Forward sales commitments	138		—		138		—
IRLCs	1,191		—		—		1,191
Total other current assets	1,329		—		138		1,191
Long-term investments
U.S. treasury securities	54,828		54,828		—		—
Total assets	$	635,624	$	598,536	$	35,897	$	1,191
Liabilities
Accrued liabilities
Forward sales commitments	$	93	$	—	$	93	$	—
IRLCs	60		—		—		60
Total liabilities	$	153	$	—	$	93	$	60

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

The significant unobservable inputs used to determine the fair value of IRLCs and MSRs that could result in a significant change in fair value measurement were as follows:

September 30, 2022

December 31, 2021

Key Inputs

Valuation Technique

Range

Weighted-Average

Range

Weighted-Average

IRLCs

Pull-through rate

Market pricing

58.0% - 100.0%

91.7%

71.1%

MSRs

Prepayment speed

Discounted cash flow

6.0% - 14.2%

6.5%

N/A

Default rates

Discounted cash flow

0.0% - 0.5%

0.1%

N/A

Discount rate

Discounted cash flow

9.5% - 12.4%

9.6%

N/A

The following is a summary of changes in the fair value of IRLCs for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance, net—beginning of period	$	9,510	$	1,972	$	1,155	$	1,771
IRLCs acquired in business combination	—		—		4,326		—
Issuances of IRLCs	20,440		3,849		40,740		14,523
Settlements of IRLCs	(23,494)		(4,248)		(40,762)		(14,956)
Fair value changes recognized in earnings	(5,408)		(489)		(4,411)		(254)
Balance, net—end of period	$	1,048	$	1,084	$	1,048	$	1,084

The following is a summary of changes in the fair value of MSRs for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance—beginning of period	$	35,050	$	—	$	—	$	—
MSRs acquired in business combination	—		—		33,982		—
MSRs originated	1,811		—		2,774		—
MSRs sales	(541)		—		(1,314)		—
Fair value changes recognized in earnings	594		—		1,472		—
Balance, net—end of period	$	36,914	$	—	$	36,914	$	—

The following table presents the carrying amounts and estimated fair values of our convertible senior notes that are not recorded at fair value on our consolidated balance sheets:


	September 30, 2022				December 31, 2021
Issuance	Net Carrying Amount		Estimated Fair Value		Net Carrying Amount		Estimated Fair Value
2023 notes	$	23,393	$	21,634	$	23,280	$	34,487
2025 notes	652,854		385,985		650,783		593,366
2027 notes	564,914		285,511		563,234		467,814

The difference between the principal amounts of our 2023 notes, our 2025 notes, and our 2027 notes, which were $23,512, $661,250, and $575,000, respectively, and the net carrying amounts of the notes represents the unamortized debt issuance costs. The estimated fair value of each tranche of convertible senior notes is based on the closing trading price of the notes on the last day of trading for the period, and is classified as Level 2 within the fair value hierarchy due to the limited trading activity of the notes. Based on the closing price of our common stock of $5.84 on September 30, 2022, the if-converted values of all three convertible notes were less than the principal amounts, respectively. See Note 15 for additional details on 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, and other assets. These assets are remeasured at fair value if determined to be impaired.

The cost or amortized cost, gross unrealized gains and losses, and estimated fair market value of our cash, money market funds, restricted cash, available-for-sale investments, and equity securities were as follows:


	September 30, 2022
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, and Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	65,328	$	—	$	—	$	65,328	$	65,328	$	—	$	—
Money markets funds	294,396		—		—		294,396		294,396		—		—
Restricted cash	43,992		—		—		43,992		43,992		—		—
U.S. treasury securities	130,002		26		(1,038)		128,990		—		87,313		41,677
Agency bonds	23,000		3		—		23,003		—		23,003		—

Total	$	556,718	$	29	$	(1,038)	$	555,709	$	403,716	$	110,316	$	41,677


	December 31, 2021
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, and Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	81,032	$	—	$	—	$	81,032	$	81,032	$	—	$	—
Money markets funds	509,971		—		—		509,971		509,971		—		—
Restricted cash	127,278		—		—		127,278		127,278		—		—
U.S. treasury securities	71,749		1		(204)		71,546		—		16,718		54,828
Agency bonds	11,900		6		—		11,906		—		11,906		—
Equity securities	500		4,613		—		5,113		—		5,113		—
Total	$	802,430	$	4,620	$	(204)	$	806,846	$	718,281	$	33,737	$	54,828

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 September 30, 2022 and December 31, 2021, we had accrued interest of $363 and $86, respectively, on our available-for-sale investments, of which we have recorded no expected credit losses. Accrued interest receivable is recorded in 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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