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Financial Instruments

9 Months Ended

Sep. 30, 2021

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, 2021		December 31, 2020
Forward sales commitments	$	96,397	$	130,109
IRLCs	94,301		88,923

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	2021		2020		2021		2020
Forward sales commitments	Service revenue	$	859	$	553	$	938	$	442
IRLCs	Service revenue	(888)		(233)		(687)		1,131

Fair Value of Financial Instruments

In May 2020, we purchased preferred stock of Matterport, Inc. ("Matterport"), then a privately held company. In July 2021, Matterport became a publicly traded company through a business combination transaction with a special purpose acquisition vehicle. In connection with the transaction, we received Matterport's publicly traded Class A common stock in exchange for the preferred stock that we owned. We previously recorded our investment at cost because the preferred stock did not have a readily determinable fair value, but upon receipt of the publicly traded common stock, we recorded our investment at fair value. The increase in value is recorded in other income (expense), net in our consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2021, and is included in adjustments to reconcile net loss to net cash used in operating activities, as a component of other, in our consolidated statement of cash flows for the nine months ended September 30, 2021. The balance is included in short-term investments in our consolidated balance sheets.

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, 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	$	501,432	$	501,432	$	—	$	—

Total cash equivalents	501,432		501,432		—		—
Short-term investments
U.S. treasury securities	11,981		11,981		—		—
Agency bonds	11,912		11,912		—		—
Equity securities	4,685		4,685		—		—
Loans held for sale	42,762		—		42,762		—
Other current assets
Forward sales commitments	552		—		552		—
IRLCs	1,146		—		—		1,146
Total other current assets	1,698		—		552		1,146
Long-term investments
U.S. treasury securities	53,488		53,488		—		—

Total assets	$	627,958	$	583,498	$	43,314	$	1,146
Liabilities
Accrued liabilities
Forward sales commitments	$	87	$	—	$	87	$	—
IRLCs	62		—		—		62
Total liabilities	$	149	$	—	$	87	$	62


	Balance at December 31, 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	$	886,261	$	886,261	$	—	$	—
U.S. treasury securities	6,100		6,100		—		—
Total cash equivalents	892,361		892,361		—		—
Short-term investments
U.S. treasury securities	131,561		131,561		—		—
Loans held for sale	42,539		—		42,539		—
Other current assets
Forward sales commitments	34		—		34		—
IRLCs	1,781		—		—		1,781
Total other current assets	1,815		—		34		1,781
Long-term investments
Agency bonds	11,922		11,922		—		—
Total assets	$	1,080,198	$	1,035,844	$	42,573	$	1,781
Liabilities
Accrued liabilities
Forward sales commitments	$	507	$	—	$	507	$	—
IRLCs	10		—		—		10
Total liabilities	$	517	$	—	$	507	$	10

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

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 pull-through rate used to determine the fair value of IRLCs was as follows:

Key Inputs

Valuation Technique

September 30, 2021

December 31, 2020

Weighted-average pull-through rate

Market pricing

71.7%

72.3%

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


Balance, net—January 1, 2021	$	1,771
Issuances of IRLCs	14,523
Settlements of IRLCs	(14,956)
Net loss recognized in earnings	(254)
Balance, net—September 30, 2021	$	1,084

Changes in fair value recognized during the period relating to assets still held at September 30, 2021	$	(687)

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, 2021				December 31, 2020
Issuance	Net Carrying Amount		Estimated Fair Value		Net Carrying Amount		Estimated Fair Value
2023 notes	$	23,243	$	38,980	$	22,482	$	59,894
2025 notes	650,093		660,556		488,268		802,083
2027 notes	562,674		516,856		—		—

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. See Note 16 for additional details. 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. As of September 30, 2021, the difference between the net carrying amount of the notes and their estimated fair values represented the notes' equity conversion premium. Based on the closing price of our common stock of $50.10 on September 30, 2021, the if-converted value of the 2023 notes exceeded the principal amount of $23,512, while the if-converted values of the 2025 notes and 2027 notes were less than the principal amounts of $661,250 and $575,000, respectively. See Note 16 for additional details on our convertible senior notes.

See Note 12 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, 2021
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	61,282	$	—	$	—	$	61,282	$	61,282	$	—	$	—
Money markets funds	501,432		—		—		501,432		501,432		—		—
Restricted cash	74,532		—		—		74,532		74,532		—		—
U.S. treasury securities	65,461		16		(8)		65,469		—		11,981		53,488
Agency bonds	11,900		12		—		11,912		—		11,912		—
Equity securities	500		4,185		—		4,685		—		4,685		—
Total	$	715,107	$	4,213	$	(8)	$	719,312	$	637,246	$	28,578	$	53,488


	December 31, 2020
	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash, Cash Equivalents, Restricted Cash		Short-term Investments		Long-term Investments
Cash	$	32,915	$	—	$	—	$	32,915	$	32,915	$	—	$	—
Money markets funds	886,261		—		—		886,261		886,261		—		—
Restricted cash	20,544		—		—		20,544		20,544		—		—
U.S. treasury securities	137,502		159		—		137,661		6,100		131,561		—
Agency bonds	11,900		22		—		11,922		—		—		11,922
Total	$	1,089,122	$	181	$	—	$	1,089,303	$	945,820	$	131,561	$	11,922

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, 2021 and December 31, 2020, we had accrued interest of $148 and $108, 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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