Fair Value Measurements

9 Months Ended

Sep. 30, 2022

We apply the following methods and assumptions in estimating our fair value measurements:

Cash equivalents — The fair value measurement of money market funds is based on quoted market prices in active markets (Level 1). The fair value measurement of other cash equivalents is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2).

Short-term investments — The fair value measurement of our short-term investments is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means (Level 2).

Restricted cash — The carrying value of restricted cash approximates fair value due to the short period of time amounts are held in escrow (Level 1).

Mortgage loans held for sale — The fair value of mortgage loans held for sale is generally calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics (Level 2).

Forward contracts — The fair value of mandatory loan sales commitments and derivative instruments such as forward sales of mortgage-backed securities that are utilized as economic hedging instruments is calculated by reference to quoted prices for similar assets (Level 2).

Interest rate lock commitments — The fair value of interest rate lock commitments (“IRLCs”) is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics. Expired commitments are excluded from the fair value measurement. Since not all IRLCs will become closed loans, we adjust our fair value measurements for the estimated amount of IRLCs that will not close. This adjustment is effected through the pull-through rate, which represents the probability that an IRLC will ultimately result in a closed loan. For IRLCs that are cancelled or expire, any recorded gain or loss is reversed at the end of the commitment period (Level 3).

The following table presents the range and weighted-average pull-through rates used in determining the fair value of IRLCs as of the dates presented:


	September 30, 2022	December 31, 2021
Range	46% - 100%	42% - 100%
Weighted-average	87%	85%

Warrant — In July 2022, we entered into a warrant agreement in conjunction with a commercial agreement with a publicly traded company that vests, subject to meeting certain conditions, over a period of five years. The warrant is accounted for as a derivative instrument recorded at fair value with gains and losses recognized in other income, net in our condensed consolidated statements of operations. The warrant is recorded within other assets in our condensed consolidated balance sheet as of September 30, 2022. The fair value measurement is adjusted for the estimated amount of tranches that will not vest. For the three and nine months ended September 30, 2022, we recorded a loss of $4 million in our condensed consolidated statements of operations related to the change in fair value of the warrant (Level 3).

The following tables present the balances of assets (liabilities) measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in millions):


	September 30, 2022
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,820	$	1,820	$	—	$	—
Short-term investments:
U.S. government agency securities	1,353		—		1,353		—
Corporate bonds	118		—		118		—
Treasury bills	45		—		45		—

Warrant	4		—		—		4
Mortgage origination-related:
Mortgage loans held for sale	49		—		49		—
IRLCs	(1)		—		—		(1)
Forward contracts - other current assets	3		—		3		—
Total	$	3,391	$	1,820	$	1,568	$	3


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	2,132	$	2,132	$	—	$	—
Short-term investments:
U.S. government agency securities	471		—		471		—
Corporate bonds	33		—		33		—
Commercial paper	10		—		10		—
Mortgage origination-related:
Mortgage loans held for sale	107		—		107		—
IRLCs	5		—		—		5
Total	$	2,758	$	2,132	$	621	$	5

The following table presents the changes in our IRLCs for the periods presented (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance, beginning of the period	$	2	$	6	$	5	$	12
Issuances	2		23		12		58
Transfers	(4)		(23)		(15)		(64)
Fair value changes recognized in earnings	(1)		1		(3)		1
Balance, end of period	$	(1)	$	7	$	(1)	$	7

At September 30, 2022, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $79 million and $131 million for our IRLCs and forward contracts, respectively. At December 31, 2021, the notional amounts of the hedging instruments related to our mortgage loans held for sale were $305 million and $388 million for our IRLCs and forward contracts, respectively. We do not have the right to offset our derivative positions.

See Note 11 for the carrying amounts and estimated fair values of our convertible senior notes.

- 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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