ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our long-term debt. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Except in very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt.
We are exposed to interest rate risk associated with our mortgage loan origination services. We manage interest rate risk through the use of forward sales of mortgage-backed securities (MBS), which are referred to as “hedging instruments” in the following discussion. We do not enter into or hold derivatives for trading or speculative purposes.
Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan funding and who meet defined credit and underwriting criteria. Typically, the IRLCs have a duration of less than six months. Some IRLCs are committed immediately to a specific purchaser through the use of best-efforts whole loan delivery commitments, while other IRLCs are funded prior to being committed to third-party purchasers. The hedging instruments related to IRLCs are classified and accounted for as derivative instruments in an economic hedge, with gains and losses recognized in revenues in the consolidated statements of operations. Hedging instruments related to funded, uncommitted loans are accounted for at fair value, with changes recognized in revenues in the consolidated statements of operations, along with changes in the fair value of the funded, uncommitted loans. The fair value change related to hedging instruments generally offsets the fair value change in the uncommitted loans. The net fair value change, which for the three and six months ended March 31, 2026 and 2025 was not significant, is recognized in current earnings. At March 31, 2026, hedging instruments used to mitigate interest rate risk related to uncommitted mortgage loans held for sale and uncommitted IRLCs totaled a notional amount of $6.2 billion. Uncommitted IRLCs totaled a notional amount of approximately $3.4 billion and uncommitted mortgage loans held for sale totaled a notional amount of approximately $2.0 billion at March 31, 2026.
We also use hedging instruments as part of a program to offer below market interest rate financing to our homebuyers. At March 31, 2026 and September 30, 2025, we had MBS totaling $1.1 billion and $677.5 million, respectively, that did not yet have IRLCs or closed loans created or assigned and recorded a liability of $0.1 million and an asset of $1.9 million, respectively, for the fair value of such MBS position.
The following table sets forth principal cash flows by scheduled maturity, effective weighted average interest rates and estimated fair value of our debt obligations as of March 31, 2026. Because the mortgage repurchase facilities are effectively secured by certain mortgage loans held for sale that are typically sold within 60 days, the outstanding balances related to those facilities are included in the most current period presented. The interest rate for our variable rate debt represents the weighted average interest rate in effect at March 31, 2026.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months
Ending
September 30, 2026 | | Fiscal Year Ending September 30, | | Fair Value at March 31, 2026 |
| | | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | Thereafter | | Total | |
| | | ($ in millions) |
| Debt: | | | | | | | | | | | | | | | | | | |
| Fixed rate | | $180.4 | | $603.2 | | $800.0 | | $17.5 | | $— | | $500.0 | | $1,900.0 | | $4,001.1 | | $3,969.3 |
| Average interest rate | | 4.8% | | 1.5% | | 3.0% | | 6.0% | | —% | | 5.1% | | 5.8% | | 4.5% | | |
| Variable rate | | $1,478.2 | | $— | | $20.1 | | $76.8 | | $865.0 | | $153.1 | | $— | | $2,593.2 | | $2,593.2 |
| Average interest rate | | 5.2% | | —% | | 4.7% | | 4.5% | | 5.4% | | 4.5% | | —% | | 5.2% | | |
