Fair Value Disclosures

6 Months Ended

Jun. 30, 2021

11. 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 mortgage loans.

Derivative assets and liabilities – Derivative assets and liabilities are related to our financial services segment and 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 delinquency rates.

Mortgage loans held for investment – The fair value of mortgage loans held for investment 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 June 30, 2021 and December 31, 2020, respectively:


			June 30,		December 31,
	Balance Sheet Classification	Hierarchy	2021		2020

Mortgage loans held for sale	Mortgage loans held for sale	Level 2	$	235,712	$	282,639
Mortgage loans held for investment	Prepaid expenses and other assets	Level 3	$	10,823	$	8,727
Derivative assets	Prepaid expenses and other assets	Level 2	$	5,545	$	7,755
Mortgage servicing rights ⁽¹⁾	Prepaid expenses and other assets	Level 3	$	10,298	$	4,115
Derivative liabilities	Accrued expenses and other liabilities	Level 2	$	758	$	3,807

(1)The unobservable inputs used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates, which were 9.0%, 9.8%, and 0.3%, respectively as of June 30, 2021, and 10.4%, 9.8%, and 0.6%, respectively, as of December 31, 2020. 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:



	Three Months Ended June 30,				Six Months Ended June 30,
Mortgage servicing rights:		2021		2020		2021		2020
Beginning of period	$	8,249	$	—	$	4,115	$	—
Originations		2,500		—		6,382		—
Disposals/settlements		(143)		—		(270)		—
Changes in fair value		(308)		—		71		—
End of period	$	10,298	$	—	$	10,298	$	—

	Three Months Ended June 30,				Six Months Ended June 30,
Mortgage loans held-for-investment		2021		2020		2021		2020
Beginning of period	$	10,078	$	6,387	$	8,727	$	3,385
Originations		1,981		1,209		3,381		4,646
Disposals/settlements		(1,180)		(754)		(1,180)		(1,173)
Reduction in unpaid principal balance		(56)		(29)		(105)		(45)
Changes in fair value		—		—		—		—
End of period	$	10,823	$	6,813	$	10,823	$	6,813

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 June 30, 2021 and December 31, 2020, respectively.



		June 30, 2021				December 31, 2020

	Hierarchy	Carrying		Fair Value		Carrying		Fair Value
Cash and cash equivalents	Level 1	$	419,416	$	419,416	$	394,001	$	394,001
Secured notes receivable ⁽¹⁾	Level 2	$	2,380	$	2,380	$	2,434	$	2,448
5.875% senior notes ⁽²⁾⁽³⁾	Level 2	$	397,170	$	412,500	$	396,821	$	417,500
6.750% senior notes ⁽²⁾⁽³⁾	Level 2	$	495,176	$	530,000	$	494,768	$	533,750
Revolving line of credit⁽⁴⁾	Level 2	$	—	$	—	$	—	$	—
Other financing obligations⁽⁴⁾⁽⁵⁾	Level 3	$	8,908	$	8,908	$	3,286	$	3,286
Mortgage repurchase facilities⁽⁴⁾	Level 2	$	159,776	$	159,776	$	259,050	$	259,050

(1)During the second quarter of 2021, the maturity of the secured note receivable was extended by two months to July of 2021, and the secured note receivable was paid in full in July 2021. Carrying amount approximates fair value due to short-term nature.

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

(3)Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of June 30, 2021, these amounts totaled $4.8 million and $2.8 million for the 6.750% senior notes and 5.875% senior notes, respectively. As of December 31, 2020, these amounts totaled $5.2 million and $3.2 million for the 6.750% senior notes and 5.875% senior notes, respectively.

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

(5)Insurance premium notes included in other financing obligations bore interest rates ranging from 3.200% 3.240% during the periods ended June 30, 2021 and December 31, 2020.

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. Nominal impairment charges were recorded in the three and six months ended June 30, 2021. During the three and six months ended June 30, 2020, we recognized impairment charges of $0.9 million and $1.7 million, respectively. The estimated fair value of the communities were 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.

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