Fair Value Disclosures

9 Months Ended

Sep. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Disclosures

13. 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 associated with interest rate lock commitments and investor commitments on loans and may also be associated with forward mortgage-backed securities contracts. Derivative liabilities are associated with forward mortgage-backed securities contracts. 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, 2024 and December 31, 2023, respectively (in thousands):

			September 30,		December 31,
	Balance Sheet Classification	Hierarchy	2024		2023
Mortgage loans held for sale	Mortgage loans held for sale	Level 2	$	257,187	$	251,852
Mortgage loans held for investment at fair value (1)	Prepaid expenses and other assets	Level 3	$	24,032	$	21,041
Derivative assets	Prepaid expenses and other assets	Level 2	$	3,757	$	1,618
Mortgage servicing rights (2)	Prepaid expenses and other assets	Level 3	$	34,523	$	30,932
Derivative liabilities	Accrued expenses and other liabilities	Level 2	$	1,088	$	5,291

⁽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 7.8%, 10.4%, and $0.073 per year per loan, respectively, as of September 30, 2024, and 8.6%, 10.3%, and $0.072 per year per loan, respectively, as of December 31, 2023. 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 our condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Mortgage servicing rights		2024		2023		2024		2023
Beginning of period	$	34,070	$	26,631	$	30,932	$	24,164
Originations		3,907		3,017		6,686		5,121
Settlements		(642)		(428)		(1,754)		(989)
Changes in fair value		(2,812)		1,273		(1,341)		2,197
End of period	$	34,523	$	30,493	$	34,523	$	30,493
	Three Months Ended September 30,				Nine Months Ended September 30,
Mortgage loans held-for-investment at fair value		2024		2023		2024		2023
Beginning of period	$	21,763	$	20,559	$	21,041	$	18,875
Transfers from loans held for sale		2,707		1,268		4,663		4,432
Settlements		(244)		(316)		(905)		(997)
Reduction in unpaid principal balance		(102)		(120)		(464)		(753)
Changes in fair value		(92)		(24)		(303)		(190)
End of period	$	24,032	$	21,367	$	24,032	$	21,367

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, 2024 and December 31, 2023, respectively (in thousands).

		September 30, 2024				December 31, 2023
	Hierarchy	Carrying		Fair Value		Carrying		Fair Value
Cash and cash equivalents	Level 1	$	149,155	$	149,155	$	226,150	$	226,150
3.875% senior notes (1)(2)	Level 2	$	496,235	$	464,375	$	495,656	$	436,875
6.750% senior notes (1)(2)	Level 2	$	497,823	$	501,875	$	497,210	$	500,000
Revolving line of credit(3)	Level 2	$	414,000	$	414,000	$	—	$	—
Other financing obligations(3)(4)	Level 3	$	124,885	$	124,885	$	69,605	$	69,605
Mortgage repurchase facilities(3)	Level 2	$	247,214	$	247,214	$	239,298	$	239,298

⁽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, 2024, these amounts totaled $3.8 million and $2.2 million for the 3.875% senior notes and 6.750% senior notes, respectively. As of December 31, 2023, these amounts totaled $4.3 million and $2.8 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/or interest rate terms.

⁽⁴⁾During the period ended September 30, 2024, other financing obligations included $14.5 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 5.0% to 8.0%, and $110.3 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 7.2% as of September 30, 2024. During the period ended December 31, 2023, other financing obligations included $24.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 4.8% to 7.7%, and $44.9 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 7.4%.

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. During the three months ended September 30, 2024, we determined that inventory with a carrying value before impairment of $10.6 million for two communities in our Century Complete and Southeast segments were not recoverable. During the nine months ended September 30, 2024, we determined that inventory with a carrying value before impairment of $15.2 million for four communities in our Century Complete and Southeast segments were not recoverable. Accordingly, during the three and nine months ended September 30, 2024, we recognized impairment charges of an aggregate $1.4 million and $1.9 million, respectively, in order to record the communities at fair value. No impairment charges were recorded in the three and nine months ended September 30, 2023. 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.