Fair value measurements are used for the Company’s mortgage loans held for sale, debt securities collateralized by residential real estate, mortgage servicing rights, IRLCs and other derivative instruments on a recurring basis and are used for inventories, other mortgage loans, rental properties and real estate owned on a nonrecurring basis, 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 – Valuation is based on quoted prices in active markets for identical assets and liabilities. The Company does not currently have any assets or liabilities measured at fair value using Level 1 inputs.

•Level 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market. The Company’s assets and liabilities measured at fair value using Level 2 inputs on a recurring basis are as follows:

◦Mortgage loans held for sale - The fair value of these loans is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Closed mortgage loans are typically sold shortly after origination, which limits exposure to nonperformance by loan buyer counterparties to a short time period. In addition, the Company actively monitors the financial strength of its counterparties.

◦IRLCs - The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. These valuations do not contain adjustments for expirations as any expired commitments are excluded from the fair value measurement. The Company generally only issues IRLCs for products that meet specific purchaser guidelines. Should any purchaser become insolvent, the Company would not be required to close the transaction based on the terms of the commitment. Since not all IRLCs will become closed loans, the Company adjusts its fair value measurements for the estimated amount of IRLCs that will not close.

◦Loan sale commitments and hedging instruments - The fair values of best-efforts and mandatory loan sale commitments and derivative instruments such as forward sales of MBS that are utilized as hedging instruments are calculated by reference to quoted prices for similar assets. The Company mitigates exposure to nonperformance risk associated with derivative instruments by limiting the number of counterparties and actively monitoring their financial strength and creditworthiness. Further, the Company’s derivative contracts typically have short-term durations with maturities from one to four months. Accordingly, the Company’s risk of nonperformance relative to its derivative positions is not significant.

The Company’s assets measured at fair value using Level 2 inputs on a nonrecurring basis are a limited number of mortgage loans held for sale with some degree of impairment affecting their marketability and are reported at the lower of carrying value or fair value. When available, fair value is determined by reference to quoted prices in the secondary markets for such assets.

•Level 3 – Valuation is typically derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

The Company’s assets measured at fair value using Level 3 inputs on a recurring basis are its debt securities collateralized by residential real estate, mortgage servicing rights and a limited number of mortgage loans held for sale with some degree of impairment affecting their marketability and for which reference to quoted prices in the secondary markets is not available.

◦Inventory held and used - In determining the fair values of its inventory held and used in its impairment evaluations, the Company performs an analysis of the undiscounted cash flows estimated to be generated by those assets. The most significant factors used to estimate undiscounted future cash flows include pricing and incentive levels actually realized by the community, the rate at which the homes are sold and the costs incurred to develop the lots and construct the homes. Inventory held and used measured at fair value represents those communities for which the estimated undiscounted cash flows are less than their carrying amounts and therefore, the Company recorded impairments during the period to record the inventory at fair value calculated based on its discounted estimated future cash flows.

◦Inventory available for sale - The factors considered in determining fair values of the Company’s land held for sale primarily include actual sale contracts and recent offers received from outside third parties, and may also include prices for land in recent comparable sales transactions and other market analysis. If the estimated fair value less the costs to sell an asset is less than the asset’s current carrying value, the asset is written down to its estimated fair value less costs to sell.

◦Certain mortgage loans held for sale - A limited number of mortgage loans held for sale have some degree of impairment affecting their marketability. For some of these loans, quoted prices in the secondary market are not available and therefore, a cash flow valuation model is used to determine fair value.

◦Certain other mortgage loans, rental properties and real estate owned - Other mortgage loans include performing and nonperforming mortgage loans, which often become real estate owned through the foreclosure process. The fair values of other mortgage loans, rental properties and real estate owned are determined based on the Company’s assessment of the value of the underlying collateral or the value of the property, as applicable. The Company uses different methods to assess the value of the properties, which may include broker price opinions, appraisals or cash flow valuation models.

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and 2019, and the changes in the fair value of the Level 3 assets during fiscal 2020 and 2019.


		Fair Value at September 30, 2020
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
		(In millions)
Debt securities collateralized by residential real estate	Other assets	$	—	$	—	$	3.9	$	3.9
Mortgage loans held for sale (1)	Mortgage loans held for sale	—		1,503.2		15.1		1,518.3
Mortgage servicing rights (2)	Other assets	—		—		17.1		17.1
Derivatives not designated as hedging instruments (3):
Interest rate lock commitments	Other assets	—		31.3		—		31.3
Forward sales of mortgage-backed securities	Other liabilities	—		(16.2)		—		(16.2)


		Fair Value at September 30, 2019
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
		(In millions)
Debt securities collateralized by residential real estate	Other assets	$	—	$	—	$	3.9	$	3.9
Mortgage loans held for sale (1)	Mortgage loans held for sale	—		1,055.3		9.8		1,065.1
Derivatives not designated as hedging instruments (3):
Interest rate lock commitments	Other assets	—		19.2		—		19.2
Forward sales of mortgage-backed securities	Other liabilities	—		(4.1)		—		(4.1)
Best-efforts and mandatory commitments	Other liabilities	—		(1.0)		—		(1.0)


	Level 3 Assets at Fair Value for the Year Ended September 30, 2020
	Balance at September 30, 2019		Net realized and unrealized gains (losses)		Purchases / Originations		Sales and Settlements		Principal Reductions		Net transfers to (out of) Level 3		Balance at September 30, 2020
	(In millions)
Debt securities collateralized by residential real estate	$	3.9	$	—	$	—	$	—	$	—	$	—	$	3.9
Mortgage loans held for sale (1)	9.8		0.2		—		(2.6)		—		7.7		15.1
Mortgage servicing rights (2)	—		1.9		15.2		—		—		—		17.1
	Level 3 Assets at Fair Value for the Year Ended September 30, 2019
	Balance at September 30, 2018		Net realized and unrealized gains (losses)		Purchases / Originations		Sales and Settlements		Principal Reductions		Net transfers to (out of) Level 3		Balance at September 30, 2019
	(In millions)
Debt securities collateralized by residential real estate	$	3.9	$	—	$	—	$	—	$	—	$	—	$	3.9
Mortgage loans held for sale (1)	7.8		0.9		—		(5.4)		—		6.5		9.8

(1)The Company typically elects the fair value option upon origination for mortgage loans held for sale. Interest income earned on mortgage loans held for sale is based on contractual interest rates and included in other income. Mortgage loans held for sale valued using Level 3 inputs at September 30, 2020 and 2019 include $15.1 million and $9.8 million, respectively, of loans for which the Company elected the fair value option upon origination and did not sell into the secondary market. Mortgage loans held for sale totaling $7.7 million and $6.5 million were transferred to Level 3 during fiscal 2020 and 2019, respectively, due to significant unobservable inputs used in determining the fair value of these loans. The fair value of these mortgage loans held for sale is generally calculated considering pricing in the secondary market and adjusted for the value of the underlying collateral, including interest rate risk, liquidity risk and prepayment risk. The Company plans to sell these loans as market conditions permit.

(2)Although the majority of the Company’s mortgage loans are sold on a servicing-released basis, when the servicing rights are retained, the Company records them at fair value using third-party valuations. The valuation at the time the servicing asset is retained is reflected in the purchases/originations column with subsequent changes in value classified as realized and unrealized gains (losses). The key assumptions used in the valuation, which are generally unobservable inputs, are mortgage prepayment rates, discount rates and delinquency rates, which were 13%, 11% and 5%, respectively, at September 30, 2020.

(3)Fair value measurements of these derivatives represent changes in fair value, as calculated by reference to quoted prices for similar assets, and are reflected in the balance sheet as other assets or accrued expenses and other liabilities. Changes in the fair value of these derivatives are included in revenues in the consolidated statements of operations. The net fair value change in fiscal 2020 and 2019 was not significant.


		Fair Value at September 30,
	Balance Sheet Location	2020				2019
		Level 2		Level 3		Level 2		Level 3
		(In millions)
Inventory held and used (1) (2)	Inventories	$	—	$	—	$	—	$	4.5

Mortgage loans held for sale (1) (3)	Mortgage loans held for sale	1.5		2.2		—		2.7
Other mortgage loans (1) (4)	Other assets	0.6		2.0		—		1.8

(1)The fair values included in the table above represent only those assets whose carrying values were adjusted to fair value as a result of impairment in the respective period and were held at the end of the period.

(3)These mortgage loans have some degree of impairment affecting their marketability and are valued at the lower of carrying value or fair value. When available, quoted prices in the secondary market are used to determine fair value (Level 2); otherwise, a cash flow valuation model is used to determine fair value (Level 3).


	Carrying Value		Fair Value at September 30, 2020
			Level 1		Level 2		Level 3		Total
	(In millions)
Cash and cash equivalents (1)	$	3,018.5	$	3,018.5	$	—	$	—	$	3,018.5
Restricted cash (1)	21.6		21.6		—		—		21.6
Notes payable (2) (3)	4,283.3		—		3,285.5		1,203.7		4,489.2


	Carrying Value		Fair Value at September 30, 2019
			Level 1		Level 2		Level 3		Total
	(In millions)
Cash and cash equivalents (1)	$	1,494.3	$	1,494.3	$	—	$	—	$	1,494.3
Restricted cash (1)	19.7		19.7		—		—		19.7
Notes payable (2) (3)	3,399.4		—		2,533.9		991.9		3,525.8

(3)The fair values of other secured notes and borrowings on the revolving credit facilities and the mortgage repurchase facility approximate carrying value due to their short-term nature or floating interest rate terms, as applicable, and are classified as Level 3 within the fair value hierarchy.