Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

v3.22.2
Financial Instruments
6 Months Ended
Jun. 30, 2022
Fair Value Disclosures [Abstract]  
Financial Instruments Financial Instruments
Derivatives

Our primary market exposure is to interest rate risk, specifically U.S. treasury and mortgage interest rates, due to their impact on mortgage-related assets and commitments. We use forward sales commitments on whole loans and mortgage-backed securities to manage and reduce this risk. We do not have any derivative instruments designated as hedging instruments.
Forward Sales Commitments—We are exposed to interest rate and price risk on loans held for sale from the funding date until the date the loan is sold. Forward sales commitments on whole loans and mortgage-backed securities are used to fix the forward sales price that will be realized at the sale of each loan.

Interest Rate Lock Commitments—Interest rate lock commitments ("IRLCs") represent an agreement to extend credit to a mortgage loan applicant. We commit (subject to loan approval) to fund the loan at the specified rate, regardless of changes in market interest rates between the commitment date and the funding date. Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of commitment through the loan funding date or expiration date. Loan commitments generally range between 30 and 90 days and the borrower is not obligated to obtain the loan. Therefore, IRLCs are subject to fallout risk, which occurs when approved borrowers choose not to close on the underlying loans. We review our commitment-to-closing ratio ("pull-through rate") as part of an estimate of the number of mortgage loans that will fund according to the IRLCs.

Notional Amounts June 30, 2022 December 31, 2021
Forward sales commitments $ 633,188  $ 70,550 
IRLCs 594,111  67,485 

The locations and amounts of gains (losses) recognized in income related to our derivatives are as follows:

Three Months Ended June 30, Six Months Ended June 30,
Instrument Classification 2022 2021 2022 2021
Forward sales commitments Service revenue $ (9,870) $ (1,849) $ (9,845) $ 79 
IRLCs Service revenue 4,054  35  4,029  201 
Fair Value of Financial Instruments

A summary of assets and liabilities related to our financial instruments, measured at fair value on a recurring basis and as reflected in our consolidated balance sheets, is set forth below:

Balance at June 30, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market funds $ 302,480  $ 302,480  $ —  $ — 
Agency bonds 7,589  7,589  —  — 
Total cash equivalents 310,069  310,069  —  — 
Short-term investments
U.S. treasury securities 71,014  71,014  —  — 
Agency bonds 11,492  11,492  —  — 
Total short-term investments 82,506  82,506  —  — 
Loans held for sale 306,364  —  306,364  — 
Other current assets
Forward sales commitments 3,462  —  3,462  — 
IRLCs 10,821  —  —  10,821 
Total other current assets 14,283  —  3,462  10,821 
Mortgage servicing rights, at fair value 35,050  —  —  35,050 
Long-term investments
U.S. treasury securities 52,989  52,989  —  — 
Total assets $ 801,261  $ 445,564  $ 309,826  $ 45,871 
Liabilities
Accrued liabilities
Forward sales commitments $ 2,175  $ —  $ 2,175  $ — 
IRLCs 1,310  —  —  1,310 
Total liabilities $ 3,485  $ —  $ 2,175  $ 1,310 
Balance at December 31, 2021 Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant
Other Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets
Cash equivalents
        Money market funds $ 509,971  $ 509,971  $ —  $ — 
Total cash equivalents 509,971  509,971  —  — 
Short-term investments
   U.S. treasury securities 16,718  16,718  —  — 
Agency bonds 11,906  11,906  —  — 
Equity securities 5,113  5,113  —  — 
Loans held for sale 35,759  —  35,759  — 
Other current assets
Forward sales commitments 138  —  138  — 
IRLCs 1,191  —  —  1,191 
Total other current assets 1,329  —  138  1,191 
Long-term investments
U.S. treasury securities 54,828  54,828  —  — 
Total assets $ 635,624  $ 598,536  $ 35,897  $ 1,191 
Liabilities
Accrued liabilities
Forward sales commitments $ 93  $ —  $ 93  $ — 
IRLCs 60  —  —  60 
Total liabilities $ 153  $ —  $ 93  $ 60 

There were no transfers into or out of Level 3 financial instruments during the periods presented.

The significant unobservable inputs used to determine the fair value of IRLCs and MSRs that could result in a significant change in fair value measurement were as follows:

Key Inputs Valuation Technique June 30, 2022 December 31, 2021
Range Weighted-Average Range Weighted-Average
IRLCs
Pull-through rate
Market pricing
69.9% - 100.0%
89.4% 71.1% 71.1%
MSRs
Prepayment speed Discounted cash flow
6.0% - 15.4%
6.6% N/A N/A
Default rates Discounted cash flow
0.0% - 0.5%
0.1% N/A N/A
Discount rate Discounted cash flow
9.0% - 11.8%
9.1% N/A N/A

The following is a summary of changes in the fair value of IRLCs for the three and six months ended June 30, 2022:

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Balance, net—beginning of period $ 243  $ 1,771  $ 1,155  $ 1,771 
IRLCs acquired in business combination 4,326  —  4,326  — 
Issuances of IRLCs 18,017  5,170  20,300  10,674 
Settlements of IRLCs (14,099) (5,569) (17,268) (10,708)
Fair value changes recognized in earnings 1,024  600  998  235 
Balance, net—end of period $ 9,511  $ 1,972  $ 9,511  $ 1,972 
The following is a summary of changes in the fair value of MSRs for the three and six months ended June 30, 2022 and 2021:

Three and Six Months Ended June 30,
2022 2021
Balance—beginning of period $ —  $ — 
MSRs acquired in business combination 33,982  — 
MSRs originated 964  — 
MSRs sales (774) — 
Fair value changes recognized in earnings 878  — 
Balance, net—end of period $ 35,050  $ — 

The following table presents the carrying amounts and estimated fair values of our convertible senior notes that are not recorded at fair value on our consolidated balance sheets:

June 30, 2022 December 31, 2021
Issuance Net Carrying Amount Estimated Fair Value Net Carrying Amount Estimated Fair Value
2023 notes $ 23,355  $ 21,264  $ 23,280  $ 34,487 
2025 notes 652,164  386,534  650,783  593,366 
2027 notes 564,354  268,962  563,234  467,814 

The difference between the principal amounts of our 2023 notes, our 2025 notes, and our 2027 notes, which were $23,512, $661,250, and $575,000, respectively, and the net carrying amounts of the notes represents the unamortized debt issuance costs. The estimated fair value of each tranche of convertible senior notes is based on the closing trading price of the notes on the last day of trading for the period, and is classified as Level 2 within the fair value hierarchy due to the limited trading activity of the notes. Based on the closing price of our common stock of $8.24 on June 30, 2022, the if-converted values of all three convertible notes were less than the principal amounts, respectively. See Note 15 for additional details on our convertible senior notes.

See Note 11 for the carrying amount of our convertible preferred stock.

Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as property and equipment, goodwill and other intangible assets, and other assets. These assets are remeasured at fair value if determined to be impaired.

The cost or amortized cost, gross unrealized gains and losses, and estimated fair market value of our cash, money market funds, restricted cash, available-for-sale investments, and equity securities were as follows:

June 30, 2022
Cost or Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Cash, Cash Equivalents, and Restricted Cash Short-term Investments Long-term Investments
Cash $ 69,853  $ —  $ —  $ 69,853  $ 69,853  $ —  $ — 
Money markets funds 302,480  —  —  302,480  302,480  —  — 
Restricted cash 28,279  —  —  28,279  28,279  —  — 
U.S. treasury securities 124,973  30  (1,000) 124,003  —  71,014  52,989 
Agency bonds 19,087  (7) 19,081  7,589  11,492  — 
Total $ 544,672  $ 31  $ (1,007) $ 543,696  $ 408,201  $ 82,506  $ 52,989 
December 31, 2021
Cost or Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Cash, Cash Equivalents, and Restricted Cash Short-term Investments Long-term Investments
Cash $ 81,032  $ —  $ —  $ 81,032  $ 81,032  $ —  $ — 
Money markets funds 509,971  —  —  509,971  509,971  —  — 
Restricted cash 127,278  —  —  127,278  127,278  —  — 
U.S. treasury securities 71,749  (204) 71,546  —  16,718  54,828 
Agency bonds 11,900  —  11,906  —  11,906  — 
Equity securities 500  4,613  —  5,113  —  5,113  — 
Total $ 802,430  $ 4,620  $ (204) $ 806,846  $ 718,281  $ 33,737  $ 54,828 

We have evaluated our portfolio of available-for-sale debt securities based on credit quality indicators for expected credit losses and do not believe there are any expected credit losses. Our portfolio consists of U.S. government securities, all with a high quality credit rating issued by various credit agencies.

As of June 30, 2022 and December 31, 2021, we had accrued interest of $171 and $86, respectively, on our available-for-sale investments, of which we have recorded no expected credit losses. Accrued interest receivable is recorded in other current assets in our consolidated balance sheets.