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Fair Value Measurements | 12 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | FAIR VALUE MEASUREMENTS Fair value measurements are used for the Company’s mortgage loans held for sale, 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. After consideration of nonperformance risk, no additional adjustments were made to the fair value measurements of mortgage loans held for sale, IRLCs or hedging instruments. •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 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. The Company’s assets measured at fair value using Level 3 inputs that are typically reported at the lower of carrying value or fair value on a nonrecurring basis are as follows: ◦Inventory held and used - In assessing impairment indicators of of its inventory held and used, 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, 2021 and 2020, and the changes in the fair value of the Level 3 assets during fiscal 2021 and 2020.
|  |  | Fair Value at September 30, 2021
| Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  |  | (In millions)
Mortgage loans held for sale (1) | Mortgage loans held for sale |  | $ | — |  |  | $ | 2,009.4 |  |  | $ | 11.7 |  |  | $ | 2,021.1 |
Mortgage servicing rights (2) | Other assets |  | — |  |  | — |  |  | 4.1 |  |  | 4.1 |
Derivatives not designated as hedging instruments (3): |  |  |  |  |  |  |  |  |
Interest rate lock commitments (4) | Other assets |  | — |  |  | 17.2 |  |  | — |  |  | 17.2 |
Forward sales of mortgage-backed securities | Other assets |  | — |  |  | 8.5 |  |  | — |  |  | 8.5 |
|  |  | 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) |
| Level 3 Assets at Fair Value for the Year Ended September 30, 2021
| Balance at September 30, 2020 |  | Net realized and unrealized gains (losses) |  | Purchases / Originations |  | Sales and Settlements |  | Principal Reductions |  | Net transfers to (out of) Level 3 |  | Balance at September 30, 2021
| (In millions)
Debt securities collateralized by residential real estate | $ | 3.9 |  |  | $ | — |  |  | $ | — |  |  | $ | (3.9) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Mortgage loans held for sale (1) | 15.1 |  |  | 0.3 |  |  | — |  |  | (3.3) |  |  | — |  |  | (0.4) |  |  | 11.7 |
Mortgage servicing rights (2) | 17.1 |  |  | (0.2) |  |  | 24.7 |  |  | (37.5) |  |  | — |  |  | — |  |  | 4.1 |
| 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 |
___________________________________________ (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, 2021 and 2020 include $11.7 million and $15.1 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 were transferred to Level 3 during fiscal 2020 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. Mortgage loans totaling $0.4 million were transferred to Level 2 during fiscal 2021 because their fair value was based on actual quoted prices related to the pending sale of those loans in the secondary market. (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 11%, 11% and 6%, respectively, at September 30, 2021. (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 2021 and 2020 recognized in revenues in the consolidated statements of operations was not significant. (4)The fair value of interest rate lock commitments at September 30, 2021 reflects $17.9 million of servicing release premiums in other assets and a change in fair value of $0.7 million in other liabilities. The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at September 30, 2021 and 2020.
|  |  | Fair Value at September 30,
| Balance Sheet Location |  | 2021 |  | 2020
|  |  | Level 2 |  | Level 3 |  | Level 2 |  | Level 3
|  |  | (In millions)
Mortgage loans held for sale (1) (2) | Mortgage loans held for sale |  | $ | — |  |  | $ | 3.8 |  |  | $ | 1.5 |  |  | $ | 2.2 |
Other mortgage loans (1) (3) | Other assets |  | — |  |  | 1.3 |  |  | 0.6 |  |  | 2.0 |
______________ (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. (2)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). (3)The fair values of other mortgage loans were determined based on the value of the underlying collateral. For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at September 30, 2021 and 2020.
| Carrying Value |  | Fair Value at September 30, 2021
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
| (In millions)
Cash and cash equivalents (1) | $ | 3,210.4 |  |  | $ | 3,210.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,210.4 |
Restricted cash (1) | 26.8 |  |  | 26.8 |  |  | — |  |  | — |  |  | 26.8 |
Notes payable (2) (3) | 5,412.4 |  |  | — |  |  | 3,950.9 |  |  | 1,589.3 |  |  | 5,540.2 |
| 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 |
______________ (1)The fair values of cash, cash equivalents and restricted cash approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy. (2)The fair value of the senior notes is determined based on quoted prices, which is classified as Level 2 within the fair value hierarchy. (3)The fair values of other secured notes and borrowings on the revolving credit facility 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.

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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