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Fair Value Disclosures | 3 Months Ended
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Mar. 31, 2023
Fair Value Disclosures [Abstract] |
Fair Value Disclosures | 12. 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 derivative liabilities are associated with forward commitments. 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 March 31, 2023 and December 31, 2022, respectively (in thousands):
|  |  |  |  |  | March 31, |  | December 31,
|  | Balance Sheet Classification |  | Hierarchy |  | 2023 |  | 2022
Mortgage loans held for sale |  | Mortgage loans held for sale |  | Level 2 |  | $ | 155,732 |  | $ | 203,558
Mortgage loans held for investment at fair value (1) |  | Prepaid expenses and other assets |  | Level 3 |  | $ | 20,078 |  | $ | 18,875
Derivative assets |  | Prepaid expenses and other assets |  | Level 2 |  | $ | 3,082 |  | $ | 1,958
Mortgage servicing rights (2) |  | Prepaid expenses and other assets |  | Level 3 |  | $ | 23,901 |  | $ | 24,164
Derivative liabilities |  | Accrued expenses and other liabilities |  | Level 2 |  | $ | 1,692 |  | $ | 1,526
(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 8.1%, 9.0%, and $0.073 per year per loan, respectively, as of March 31, 2023, and 7.6%, 9.0%, and $0.072 per year per loan, respectively, as of December 31, 2022. 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 March 31,
Mortgage servicing rights |  | 2023 |  |  | 2022
Beginning of period | $ | 24,164 |  | $ | 13,701
Originations |  | 1,045 |  |  | 3,406
Settlements |  | (151) |  |  | (305)
Changes in fair value |  | (1,157) |  |  | 1,248
End of period | $ | 23,901 |  | $ | 18,050
| Three Months Ended March 31,
Mortgage loans held-for-investment at fair value |  | 2023 |  |  | 2022
Beginning of period | $ | 18,875 |  | $ | 10,631
Transfers from loans held for sale |  | 1,434 |  |  | 3,926
Settlements |  | — |  |  | (529)
Reduction in unpaid principal balance |  | (104) |  |  | (54)
Changes in fair value |  | (127) |  |  | (19)
End of period | $ | 20,078 |  | $ | 13,955
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 March 31, 2023 and December 31, 2022, respectively (in thousands).
|  |  |  | March 31, 2023 |  | December 31, 2022
|  | Hierarchy |  | Carrying |  | Fair Value |  | Carrying |  | Fair Value
Cash and cash equivalents |  | Level 1 |  | $ | 405,722 |  | $ | 405,722 |  | $ | 296,724 |  | $ | 296,724
3.875% senior notes (1)(2) |  | Level 2 |  | $ | 495,077 |  | $ | 425,000 |  | $ | 494,884 |  | $ | 395,000
6.750% senior notes (1)(2) |  | Level 2 |  | $ | 496,598 |  | $ | 492,500 |  | $ | 496,394 |  | $ | 477,500
Revolving line of credit(3) |  | Level 2 |  | $ | — |  | $ | — |  | $ | — |  | $ | —
Other financing obligations(3)(4) |  | Level 3 |  | $ | 34,940 |  | $ | 34,940 |  | $ | 28,134 |  | $ | 28,134
Mortgage repurchase facilities(3) |  | Level 2 |  | $ | 149,784 |  | $ | 149,784 |  | $ | 197,626 |  | $ | 197,626
(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 March 31, 2023, these amounts totaled $4.9 million and $3.4 million for the 3.875% senior notes and 6.750% senior notes, respectively. As of December 31, 2022, these amounts totaled $5.1 million and $3.6 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 interest rate terms. (4)Other financing obligations included $20.4 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40% to 6.40%, and $14.5 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 6.778% during the period ended March 31, 2023. Other financing obligations included $20.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40% to 5.84%, and $7.4 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 5.634% during the period ended December 31, 2022. 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. No impairment charges were recorded in the three months ended March 31, 2023 and 2022. 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.

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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