XML 31 R18.htm IDEA: XBRL DOCUMENT

Fair Value Disclosures

9 Months Ended

Sep. 30, 2022

12. Fair Value Disclosures

Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage loans held for investment, mortgage servicing rights, interest rate lock commitments and other derivative instruments on a recurring basis. We also utilize fair value measurements on a non-recurring basis for inventories and intangible assets when events and circumstances indicate that the carrying value is not recoverable. The fair value hierarchy and its application to the Company’s assets and liabilities is as follows:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at the measurement date.

Mortgage loans held for sale – Fair value is based on quoted market prices for committed and uncommitted mortgage loans.

Derivative assets and liabilities – Derivative assets are interest rate lock commitments and derivative liabilities are associated with forward commitments and investor commitments on loans. Fair value is based on market prices for similar instruments.

Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at the measurement date.

Mortgage servicing rights - The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service.

Mortgage loans held for investment at fair value – The fair value of mortgage loans held for investment at fair value is calculated based on Level 3 analysis which incorporates information including the value of underlying collateral, from markets where there is little observable trading activity.

The following outlines the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021, respectively (in thousands):


			September 30,		December 31,
	Balance Sheet Classification	Hierarchy	2022		2021

Mortgage loans held for sale	Mortgage loans held for sale	Level 2	$	194,123	$	353,063
Mortgage loans held for investment at fair value ⁽¹⁾	Prepaid expenses and other assets	Level 3	$	16,285	$	10,631
Derivative assets	Prepaid expenses and other assets	Level 2	$	7,937	$	5,944
Mortgage servicing rights ⁽²⁾	Prepaid expenses and other assets	Level 3	$	21,794	$	13,701
Derivative liabilities	Accrued expenses and other liabilities	Level 2	$	—	$	359

⁽¹⁾The unobservable inputs used in the valuation of the mortgage loans held for investment at fair value include, among other items, the value of underlying collateral, from markets where there is little observable trading activity.

⁽²⁾The unobservable inputs used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service, which were 7.6%, 10.0%, and $0.086 per year per loan, respectively as of September 30, 2022, and 8.5%, 9.9%, and $0.085 per year per loan, respectively, as of December 31, 2021. The high and low end of the range of unobservable inputs used in the valuation did not result in a significant change to the fair value measurement.

The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements, with gains and losses from the changes in fair value reflected in financial services revenue on the condensed consolidated statements of operations (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
Mortgage servicing rights		2022		2021		2022		2021
Beginning of period	$	20,196	$	10,298	$	13,701	$	4,115
Originations		1,232		1,604		6,605		7,986
Settlements		(166)		(258)		(701)		(527)
Changes in fair value		532		27		2,189		97
End of period	$	21,794	$	11,671	$	21,794	$	11,671

	Three Months Ended September 30,				Nine Months Ended September 30,
Mortgage loans held-for-investment at fair value		2022		2021		2022		2021
Beginning of period	$	14,509	$	10,823	$	10,631	$	8,727
Transfers from loans held for sale		1,904		973		7,046		4,354
Settlements		—		(129)		(1,121)		(1,309)
Reduction in unpaid principal balance		(89)		(54)		(213)		(159)
Changes in fair value		(39)		—		(58)		—
End of period	$	16,285	$	11,613	$	16,285	$	11,613

For the financial assets and liabilities that the Company does not reflect at fair value, the following present both their respective carrying value and fair value at September 30, 2022 and December 31, 2021, respectively (in thousands).



		September 30, 2022				December 31, 2021

	Hierarchy	Carrying		Fair Value		Carrying		Fair Value
Cash and cash equivalents	Level 1	$	98,203	$	98,203	$	316,310	$	316,310
3.875% senior notes ⁽¹⁾⁽²⁾	Level 2	$	494,691	$	380,000	$	494,117	$	504,375
6.750% senior notes ⁽¹⁾⁽²⁾	Level 2	$	496,190	$	466,250	$	495,581	$	526,875
Revolving line of credit⁽³⁾	Level 2	$	165,000	$	165,000	$	—	$	—
Other financing obligations⁽³⁾⁽⁴⁾	Level 3	$	25,667	$	25,667	$	9,238	$	9,238
Mortgage repurchase facilities⁽³⁾	Level 2	$	195,047	$	195,047	$	331,876	$	331,876

⁽¹⁾Estimated fair value of the senior notes is based on recent trading activity in inactive markets.

⁽²⁾Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of September 30, 2022, these amounts totaled $5.3 million and $3.8 million for the 3.875% senior notes and 6.750% senior notes, respectively. As of December 31, 2021, these amounts totaled $5.9 million and $4.4 million for the 3.875% senior notes and 6.750% senior notes, respectively.

⁽³⁾Carrying amount approximates fair value due to short-term nature and interest rate terms.

⁽⁴⁾Other financing obligations included $22.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40% to 3.99%, and $3.0 million related to outstanding borrowings on the Construction Loan Agreements that bore a weighted average interest rate of 4.423% during the period ended September 30, 2022. Other financing obligations included $9.2 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.99% to 3.24% during the period ended December 31, 2021.

Non-financial assets and liabilities include items such as inventory and property and equipment that are measured at fair value when acquired and as a result of impairments, if deemed necessary. No impairment charges were recorded in the three and nine months ended September 30, 2022. No impairment charges were recorded in the three months ended September 30, 2021, and nominal impairment charges were recorded in the nine months ended September 30, 2021. When impairment charges are recognized, the estimated fair value of communities are determined through a discounted cash flow approach utilizing Level 3 inputs. Changes in our cash flow projections in future periods related to these communities may change our conclusions on the recoverability of inventory in the future.

- 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.

+ References + Details