What changed in this filing

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Item 1A. Risk Factors

2024-02-16 compared with 2023-02-17 · 76 added, 76 removed, 204 unchanged (43% of the section changed)

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These above conditions, among others, are complex and interrelated.

Adverse changes in such business conditions may have a significant negative impact on our business.

Adverse changes in such business conditions may have a significantly negative impact on our business.

The negative impact may be national in scope but may also negatively affect some of the regions or markets in which we operate more than others.

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We cannot predict their occurrence or severity, nor can we provide assurance that our strategic responses to their impacts would be successful.

We began to experience a slowdown in the homebuilding and mortgage lending industries during the second half of 2022.

As the national economy weakened and inflation and mortgage interest rates rose at unprecedented rates, we experienced a decline in the demand for our homes.

Continued decline in the homebuilding and mortgage lending industries and overall economy could decrease the market value of our inventory which could have a negative impact on our gross margins form home sales.

Housing market conditions stabilized during 2023 compared to the latter half of 2022 as interest rate increases moderated and consumer confidence began to improve.

However, any decline in the homebuilding and mortgage lending industries and overall economy could decrease the market value of our inventory which could have a negative impact on our gross margins from home sales.

A reduction in our gross margins from home sales could have a significantly negative impact on our financial position and results of operations.

Additional external factors, such as foreclosure rates, mortgage availability, high inflation, and unemployment rates, could also negatively impact our results.

Additional external factors, such as foreclosure rates, mortgage availability, high inflation, a global economic slowdown, the prospect of a recession, and unemployment rates, could also negatively impact our results.

Increased mortgage interest rates have made it increasingly difficult for potential customers to qualify for sufficient financing, which is contributing to the affordability issues negatively impacting the homebuilding and mortgage lending industries.

Customers may be less willing or able to buy our homes if these conditions continue to impact the homebuilding industry.

We are closely monitoring our sales prices and have begun to offer sales incentives and mortgage rate buy-down programs and adjust base sales prices in certain circumstances and in certain communities, which will negatively impact our sales prices and future gross margins.

Our cancellation rate has increased significantly from 2021 as buyers are walking away from home purchases due to affordability issues.

We closely monitor our sales prices and offer sales incentives and mortgage rate buy-down programs and adjust base sales prices in certain circumstances and in certain communities, which negatively impacted our sales prices and gross margins in 2023.

We may or may not continue to offer these incentives in 2024.

In the future, our pricing strategies may be limited by market conditions.

We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to

maintain our gross margins or satisfactorily address changing market conditions in other ways.

In addition, cancellations of home sales contracts in backlog may continue to increase.

Our absorption rate during 2022 declined to 3.1 per community compared to prior year’s 4.1 (a record high).

Any further decline in sales activity could adversely affect our results of operations, financial condition and cash flows.

We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to maintain our gross margins or satisfactorily address changing market conditions in other ways.

In addition, cancellations of home sales contracts in backlog may increase.

Although our absorption rate and new contracts improved during 2023 compared to prior year, any decline in sales activity could adversely affect our results of operations, financial condition and cash flows.

Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally on behalf of purchasers of the homes we build.

As the demand for our homes declined during 2022, the financial results of our financial services segment also declined.

If demand for our homes declines in the future, the financial results of our financial services segment will also decline.

Additionally, we may be subject to increased counterparty risks, including purchasers of mortgages originated by M/I Financial being unwilling or unable to perform their obligations to us.

To the extent a third party is unwilling or unable to perform such obligations, our financial condition, results of operations and/or cash flows could be negatively impacted.

Increased competition levels in the homebuilding and mortgage lending industries could result in a reduction in our new contracts and homes delivered, along with decreases in the average sales prices of homes delivered and/or decreased mortgage originations, which would have a negative impact on our results of operations.

Increased competition levels in the homebuilding and mortgage lending industries could reduce our new contracts and homes delivered, decrease the average sales prices of homes delivered and decrease mortgage originations, which would have a negative impact on our results of operations.

The homebuilding industry is fragmented and highly competitive.

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Homebuilders compete for customers, land, building materials, subcontractor labor and financing.

Competition for home orders is primarily based upon home sales price, location of property, home style, financing available to prospective homebuyers, quality of homes built, customer service and general reputation in the community, and may vary by market, sub-market and even by community.

Competition for new home orders is primarily based upon home sales price, location of property, home style, financing available to prospective homebuyers, quality of homes built, customer service and general reputation in the community, and may vary by market, sub-market and even by community.

Additionally, competition within the homebuilding industry can be impacted by an excess supply of new and existing homes available for sale resulting from a number of factors including, among other things, increases in unsold started homes available for sale and increases in home foreclosures.

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Competitive factors that affect our financial services operations include pricing, mortgage loan terms, underwriting criteria and customer service.

To the extent that we are unable to adequately compete with other companies that originate mortgage loans, the results of operations from our mortgage operations may be negatively impacted.

To the extent that we are unable to adequately compete with other companies that originate mortgage loans, the results of operations of our mortgage operations may be negatively impacted.

Further reduction in the availability of mortgage financing or continued increases in mortgage interest rates or down payment requirements could adversely affect our business.

Mortgage interest rates increased significantly in 2022 from historical lows, which increased the costs of owning a home and reduced the demand for our homes.

The additional increases forecasted by the Federal Reserve could further increase the costs of owning a home and reduce the demand for our homes.

Mortgage interest rates increased significantly in 2022 and 2023 from historical low rates, which increased the costs of owning a home and reduced the demand for our homes.

Any additional increases by the Federal Reserve could further increase the costs of owning a home and reduce the demand for our homes.

In addition, any reduction in the availability of the financing provided by Fannie Mae and Freddie Mac could adversely affect interest rates, mortgage availability and our sales of new homes and origination of mortgage loans.

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If, due to the factors discussed above, M/I Financial is limited from making or unable to make loan products available to our homebuyers, our home sales and our homebuilding and financial services results of operations may be adversely affected.

If land is not available at reasonable prices or terms, our homes sales revenue and results of operations could be negatively impacted and/or we could be required to scale back our operations in a given market.

We believe that the availability of mortgage financing, including through federal government agencies or government-sponsored enterprises (such as Freddie Mac, Fannie Mae, FHA and VA financing), is an important factor in marketing many of our homes.

Any limitations or restrictions on the availability of mortgage financing could reduce our sales.

In addition, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding and financial services results of operations.

If land is unavailable at reasonable prices or terms, our homes sales revenue and results of operations could be negatively impacted and/or we could be required to scale back our operations in a given market.

Our operations depend on our ability to obtain land for the development of our communities at reasonable prices and with terms that meet our underwriting criteria.

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In addition, inventory carrying costs can be significant, and fluctuations in value can reduce profits.

Economic conditions could require that we sell homes or land at a loss, hold land in inventory longer than planned or walk away from land that we no longer intend to purchase resulting in write-offs of land deposits, which could significantly impact our financial condition, results of operations, cash flows and stock performance.

We recorded an aggregate loss of $18.4 million during the fourth quarter of 2022 that included $10.2 million of write-offs of land deposits for land we no longer intend to purchase as a result of our efforts to right-size our land portfolio and $8.2 million of asset impairment charges.

Additionally, as conditions in the homebuilding industry decline, we are required to evaluate our inventory for potential impairment, which may result in additional valuation adjustments, which could be significant and could negatively impact our financial results and condition.

Economic conditions could require us to sell homes or land at a loss, hold land in inventory longer than planned or walk away from land that we no longer intend to purchase resulting in write-offs of land deposits, which could significantly impact our financial condition, results of operations, cash flows and stock performance.

Periodically, as part of our normal course of business, we record asset impairment charges or write-off deposits for land that we no longer intend to purchase.

If conditions in the homebuilding industry decline, we are required to evaluate our inventory for potential impairment, which may result in additional valuation adjustments, which could be significant and could negatively impact our results of operations and financial condition.

We cannot make any assurances that the measures we employ to manage inventory risks and costs will be successful.

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Any of these circumstances could delay the start or completion of our communities, increase the cost of developing one or more of our communities and increase the construction cost of our homes.

To the extent that market conditions prevent the recovery of increased costs, including, among other things, subcontracted labor, developed lots, building materials, and other resources, through higher sales prices, our gross margins from home sales and results of operations could be adversely affected.

We continued to experience disruptions in our supply chain during 2022, including the availability and shortage of labor and certain building materials and finishing products, such as cabinets and appliances, which lengthened the production cycles in certain markets and increased costs for labor and building materials.

In 2022, we were able to manage through these disruptions and cost increases by raising prices and managing other costs.

Supply chain disruptions began to subside during 2023, and we began to experience an improvement in the availability and shortage of labor and certain building products, which positively impacted our construction cycle times.

However, if labor and building material shortages and cost increases continue, our gross margins and results of operations could be adversely affected if we are unable to continue to increase prices or achieve other cost savings.

We depend on the continued availability of and satisfactory performance of subcontracted labor for the construction of our homes and to provide related materials.

As noted above, we have experienced, and may continue to experience, labor and material shortages in certain of our markets.

The cost of labor may also be adversely affected by shortages of qualified subcontractors and construction personnel, changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration.

We have experienced, and may continue to experience, labor shortages in certain of our markets.

The cost of labor may also be adversely affected by shortages of qualified subcontractors and construction personnel (including as a result of the trade population), changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration.

We cannot provide any assurance that there will be a sufficient supply of, or satisfactory performance by, these unaffiliated third-party subcontractors, which could have a material adverse effect on our business.

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If the federal government or a state government changes its income tax laws by eliminating or substantially reducing the income tax benefits associated with homeownership, such as personal tax deductions for mortgage loan interest and real estate taxes, the after-tax cost of owning a home could measurably increase.

Any such increases, in addition to increases in personal income tax rates, could adversely impact demand for and/or selling prices of new homes, including our homes, and the effect on our consolidated financial statements could be adverse and material.

Any such increases, in addition to increases in personal income

tax rates, could adversely impact demand for and/or selling prices of new homes, including our homes, and the effect on our consolidated financial statements could be adverse and material.

We may not be able to offset the impact of inflation through price increases.

Inflation can have a long-term adverse impact on us because if our costs of land, materials and labor increase, we would need to increase the sale prices of our homes to maintain satisfactory margins.

As a result of the historically high rates of inflation in 2022, we experienced, and expect to continue to experience into 2023, increases in the costs of land, materials and labor.

In such a highly inflationary environment, we may not be able to raise home prices enough to keep pace with the increased costs of land and house construction, which could reduce our profit margins.

As a result of the historically high rates of inflation we experienced in 2022 and into early 2023, we experienced increases in the costs of land, materials and labor.

We may continue to experience high rates of inflation in the future, and in a high inflationary environment, we may not be able to raise home prices enough to keep pace with the increased costs of land and house construction, which could reduce our profit margins.

Our limited geographic diversification could adversely affect us if the demand for new homes in our markets declines.

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We recorded goodwill in connection with our acquisition of the assets and operations of Pinnacle Homes.

On an ongoing basis, we will evaluate whether facts and circumstances indicate any impairment of the value of intangible assets.

On an ongoing basis, we evaluate whether facts and circumstances indicate any impairment of the value of intangible assets.

As circumstances change, we cannot provide any assurance that we will realize the value of these intangible assets.

If we determine that a significant impairment has occurred, we will be required to write-off the impaired portion of intangible assets, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.

Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties.

M/I Financial originates mortgages, primarily for our homebuilding customers.

A portion of the mortgage loans originated are sold on a servicing released, non-recourse basis, although M/I Financial remains liable for certain limited representations and warranties, such as fraud, and warranties related to loan sales.

Accordingly, mortgage investors have in the past and could in the future seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties.

There can be no assurance that we will not have significant liabilities in respect of such claims in the future, which could exceed our reserves, or that the impact of such claims on our results of operations will not be material.

Homebuilding is subject to construction defect, product liability and warranty claims that can be significant and costly.

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Because of the high degree of judgment required in determining these liability reserves, our actual future liability could differ significantly from our reserves.

Given the inherent uncertainties, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will be adequate to address all of our construction

defect, product liability and warranty claims.

Given the inherent uncertainties, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will adequately address all of our construction defect, product liability and warranty claims.

If the costs to resolve these claims exceed our estimates, our results of operations, financial condition and cash flows could be adversely affected.

We have received claims related to stucco installation from homeowners in certain of our communities in our Tampa and Orlando, Florida markets and have been named as a defendant in legal proceedings initiated by certain of such homeowners.

While we have estimated our overall future stucco repair costs, our estimate is based on our judgment, various assumptions and internal data.

Given the inherent uncertainties, we cannot provide assurance that the final costs to resolve these claims will not exceed our accrual and adversely affect our results of operations, financial condition and cash flows.

See Note 1 and Note 8 to the Company’s Consolidated Financial Statements for further information regarding these stucco claims and our warranty reserves.

Our subcontractors can expose us to warranty and other risks.

We rely on subcontractors to construct our homes, and in many cases, to select and obtain building materials.

We rely on subcontractors to construct our homes, and in many cases, select and obtain building materials.

Despite our detailed specifications and quality control procedures, in some cases, it may be determined that subcontractors used improper construction processes or defective materials in the construction of our homes.

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When we learn about potentially improper practices by subcontractors, we try to cause the subcontractors to discontinue them.

However, we may not always be able to cause our subcontractors to discontinue potentially improper practices, and even when we can, we may not be able to avoid claims against us for personal injury, property damage or other losses relating to prior actions of our subcontractors.

However, we may not always be able to

cause our subcontractors to discontinue potentially improper practices, and even when we can, we may not be able to avoid claims against us for personal injury, property damage or other losses relating to prior actions of our subcontractors.

Risks Related to Indebtedness and Financing

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This acceleration of our obligations under the 2030 Senior Notes and the 2028 Senior Notes could force us into bankruptcy or liquidation and we may be unable to repay those amounts without selling substantial assets, which might be at prices well below the long-term fair values and carrying values of the assets.

Our ability to

comply with the foregoing restrictions and covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions.

Our ability to comply with the foregoing restrictions and covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions.

Our indebtedness could adversely affect our financial condition, and we and our subsidiaries may incur additional indebtedness, which could increase the risks created by our indebtedness.

As of December 31, 2022, we had approximately $692.5 million of indebtedness (net of debt issuance costs), excluding issuances of letters of credit, our $200 million secured mortgage warehousing agreement, with M/I Financial as borrower (the “MIF Mortgage Warehousing Agreement”), and our $90 million mortgage repurchase facility, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”), and we had $555.1 million of remaining availability for borrowings under the Credit Facility.

As of December 31, 2023, we had approximately $693.7 million of indebtedness (net of debt issuance costs), excluding issuances of letters of credit and our $300 million mortgage repurchase facility, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”), and we had $579.3 million of remaining availability for borrowings under the Credit Facility.

In addition, under the terms of the Credit Facility, the indentures governing the 2030 Senior Notes and the 2028 Senior Notes and the documents governing our other indebtedness, we have the ability, subject to applicable debt covenants, to incur additional indebtedness.

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If we cannot obtain surety bonds when required, our results of operations and/or cash flows could be adversely impacted.

The M/I Financial warehouse facilities will expire in 2023.

M/I Financial uses two mortgage warehouse facilities to finance eligible residential mortgage loans originated by M/I Financial, the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility.

These facilities will expire on May 26, 2023 and October 23, 2023, respectively.

If we are unable to renew or replace the warehousing facilities when they mature, the activities of our financial services segment could be impeded and our home sales and our homebuilding and financial services results of operations may be adversely affected.

The M/I Financial repurchase facility will expire in 2024.

M/I Financial uses the MIF Mortgage Repurchase Facility to finance eligible residential mortgage loans originated by M/I Financial.

This facility will expire on October 22, 2024.

If we are unable to renew or replace the MIF Mortgage Repurchase Facility when it matures, the activities of our financial services segment could be impeded and our home sales and homebuilding and financial services results of operations may be adversely affected.

We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets, and disruptions in these markets could have an adverse impact on our results of operations, financial condition and/or cash flows.

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The exit of third-party purchasers of mortgage loans from the business, reduced investor demand for mortgage loans and mortgage-backed securities in the secondary mortgage markets and increased investor yield requirements for those loans and securities may have an adverse impact on our results of operations, financial condition and/or cash flows.

Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties.

M/I Financial originates mortgages, primarily for our homebuilding customers.

If our ability to resell mortgages to investors is impaired, we may be required to broker loans.

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If we became unable to sell loans into the secondary mortgage market or directly to Fannie Mae and Freddie Mac or issue Ginnie Mae securities, we would have to modify our origination model, which, among other things, could significantly reduce our ability to sell homes.

The inability of our lenders to satisfy their obligations under our credit facilities could adversely affect our liquidity and financial condition.

banking industry experienced bank failures and other significant challenges in 2023.

The failure of other banks or financial institutions could have an adverse effect on our liquidity or consolidated financial statements if we have deposits at the failed banks or financial institutions, or if the failed banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Credit Facility.

Under our Credit Facility, non-defaulting lenders still have an obligation to fund amounts up to their commitment level under the Credit Facility.

However, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit and may be unwilling to issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral).

If the non-defaulting lenders are unable or unwilling to cover or acquire a defaulting lender’s respective commitment, the borrowing and letter of credit capacities under our Credit Facility may be more limited.

In addition, if a buyer under the MIF Mortgage Repurchase Facility, which M/I Financial uses to fund mortgage originations, fails or is unable or unwilling to fulfill its obligations, M/I Financial’s borrowing capacity under the MIF Mortgage Repurchase Facility may be limited and have an adverse effect on our liquidity and ability to provide mortgage loans to our homebuyers.

Regulatory and Legal Risks

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Future rulings by the NLRB or other courts or governmental agencies could make us responsible for labor violations committed by our subcontractors.

Governmental rulings that hold us responsible for labor practices by our subcontractors could create substantial exposures for us under our subcontractor relationships.

Governmental rulings that hold us responsible for labor practices of our subcontractors could create substantial exposures for us under our subcontractor relationships.

We are subject to extensive government regulations, which could restrict our business and cause us to incur significant expense.

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The environmental regulations applicable to each community in which we operate vary greatly depending on the location of the community site, the site’s environmental conditions and the present and former use of the site.

These statutes,

ordinances, rules and regulations may cause delays, may cause us to incur substantial compliance, remediation or other costs, and can prohibit or severely restrict development and homebuilding activity.

In addition, any failure to comply therewith could give rise to fines, penalties or other liabilities, obligations to remediate, permit revocations or other sanctions and have an adverse effect on our results of operations, financial condition or business.

Recently, there has been growing concern from advocacy groups, government agencies and the general public regarding the impact of climate change.

Transition risks, such as government restrictions, standards or regulations intended to reduce greenhouse gas emissions and potential climate change impacts, are emerging and may increase in the future in the form of additional restrictions or regulations on land development and home construction in certain areas.

These statutes, ordinances, rules and regulations may cause delays, may cause us to incur substantial compliance, remediation or other costs, and can prohibit or severely restrict development and homebuilding activity.

In addition, any failure to comply therewith could

give rise to fines, penalties or other liabilities, obligations to remediate, permit revocations or other sanctions and have an adverse effect on our results of operations, financial condition or business.

Various advocacy groups and government agencies and the general public are increasingly focusing on the impact of climate change.

Government restrictions, standards and regulations intended to mitigate climate change, such as greenhouse gas emissions standards, are emerging and may increase in the future in the form of additional restrictions or regulations on land development and home construction in certain areas.

Such restrictions and regulations could increase our operating and compliance costs and have an adverse effect on our results of operations, financial condition or business.

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We must also obtain licenses, permits and approvals from various governmental authorities in connection with our development activities, and these governmental authorities often have broad discretion in exercising their approval authority.

During 2022, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we expect that we may experience a similar level of delays in 2023.

During 2022 and 2023, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we expect that we may experience a similar level of delays in 2024.

Governmental authorities may also restrict or place moratoriums on the availability of utilities, such as water and sewer taps.

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In addition, we may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law.

If governmental authorities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs, or limiting our ability to operate in the applicable area.

If governmental authorities in locations in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs, or limiting our ability to operate in the applicable area.

We incur substantial costs related to compliance with legal and regulatory requirements.

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Our results of operations, financial condition and cash flows could be adversely affected if pending or future legal claims against us are not resolved in our favor.

In addition to the legal proceedings related to stucco discussed above, the Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business.

While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows, such legal proceedings are subject to inherent uncertainties.

The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings.

The Company and certain of its subsidiaries have been named as defendants in certain legal proceedings which are incidental to our business.

While management currently believes that the ultimate resolution of these legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows, such legal proceedings are subject to inherent uncertainties.

The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these legal proceedings.

However, the costs to resolve these legal proceedings ultimately may exceed the recorded estimates and, therefore, have a material adverse effect on the Company’s results of operations, financial condition, and cash flows.

Similarly, if additional legal proceedings are filed against us in the future, including with respect to stucco installation in our Florida communities, the negative outcome of one or more of such legal proceedings could have a material adverse effect on our results of operations, financial condition and cash flows.

Similarly, if additional legal proceedings are filed against us in the future, the negative outcome of one or more of such legal proceedings could have a material adverse effect on our results of operations, financial condition and cash flows.

General Risk Factors

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We believe that this type of seasonality reflects the historical tendency of homebuyers to purchase new homes in the spring and summer with deliveries scheduled in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions in certain markets.

There can be no assurance that this seasonality

pattern will continue to exist in future reporting periods.

There can be no assurance that this seasonality pattern will continue to exist in future reporting periods.

In addition, as a result of such variability, our historical performance may not be a meaningful indicator of future results.

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Several of our markets, specifically our operations in Florida, North Carolina and Texas, are situated in geographical areas that are regularly impacted by severe storms, including hurricanes, flooding and tornadoes.

In addition, our operations in the Northern Region can be impacted by severe storms, including tornadoes.

In addition, the operations of our Northern homebuilding segment can be impacted by severe storms, including tornadoes.

Also, the physical impacts of climate change may cause these occurrences to increase in frequency, severity and duration.

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We have implemented systems and processes intended to address ongoing and evolving cyber security risks, secure our information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive, confidential and personal data.

We adhere to the NIST CSF Framework to ensure we have proper controls in place to reduce our risk to cyber security threats.

We also depend on various partners and providers, and our mortgage software service partners, to secure our home buyers’ personal identifiable and confidential information.

We adhere to the National Institute of Standards and Technology (“NIST”) CSF Framework to ensure we have proper controls in place to reduce our risk to cyber security threats.

We also depend on various partners and providers, and our mortgage and title service software partners, to secure our home buyers’ personal identifiable and confidential information.

We provide regular personnel awareness training regarding potential cyber security threats, including the use of internal tips, reminders and phishing assessments, to help ensure employees remain diligent in identifying potential risks.

In addition, we have deployed monitoring capabilities to support early detection, internal and external escalation, and effective responses to potential anomalies.

However, cyberattacks or other security breaches may remain undetected over an extended period of time and may not be addressed in a timely manner to minimize the impact, which could result in substantial costs.

Many of our information technology and other computer resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify to varying degrees certain security and service level standards.

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Although we and our service providers employ what we believe are adequate security, disaster recovery and other preventative and corrective measures, our security measures, taken as a whole, may not be sufficient for all possible situations and may be vulnerable to, among other things, hacking, employee error, system error and faulty password management.

Our ability to conduct our business may be impaired if these informational technology and computer resources, including our website, are compromised, degraded or damaged or if they fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.

Our ability to conduct our business may be impaired if these informational technology and computer resources, including our website and customer-facing applications, are compromised, degraded or damaged or if they fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.

A significant disruption in the functioning of these resources, or breach thereof, including our website, could damage our reputation and cause us to lose customers, sales and revenue.

In addition, breaches of our information technology systems or data security systems, including cyber attacks, could result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information (including information we collect and retain in connection with our business about our homebuyers, business partners and employees), and require us to incur significant expense (that we may not be able to recover in whole or in part from our service providers or responsible parties, or their or our insurers) to address and remediate or otherwise resolve.

The unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying or

confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings, could have a material and adverse effect on our financial condition, results of operations and cash flows and harm our reputation.

In addition, breaches of our information technology systems or data security systems, including cyberattacks and malicious uses of artificial intelligence, could result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information (including information we collect and retain in connection with our business about our homebuyers, business partners and employees), and require us to incur significant expense (that we may not be able to recover in whole or in part from our service providers or responsible parties, or their or our insurers) to address and remediate or otherwise resolve.

The unintended and/or unauthorized public disclosure or the misappropriation of

proprietary, personal identifying or confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings, could have a material and adverse effect on our financial condition, results of operations and cash flows and harm our reputation.

In addition, the costs of maintaining adequate protection against such threats, based on considerations of their evolution, increasing sophistication, pervasiveness and frequency and/or increasingly demanding government-mandated standards or obligations regarding information security and privacy, could be material to our consolidated financial statements in a particular period or over various periods.

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Our business could be materially and adversely disrupted by an epidemic, pandemic or similar public health issue, or fear of such an event, and the measures that international, federal, state and local public health and governmental authorities implement to address it.

An epidemic, pandemic or similar public health issue, or fear of such an event, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

The impact of an epidemic, pandemic or similar public health issue on our business will depend on future developments, including whether governmental authorities impose additional health and safety measures, the outbreak, duration and severity of new variants, the acceptance and effectiveness of vaccines, and the impact of the pandemic on our employees, customers, and building partners.

An epidemic, pandemic or similar public health issue, or fear of such an event, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period and, together with any associated economic and social instability or distress, have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

The impact of an epidemic, pandemic or similar public health issue on our business will depend on future developments, including whether governmental authorities impose additional health and safety measures, the duration and severity of the public health issue, the acceptance and effectiveness of treatments including vaccines, and the impact of the public health issue on our employees, customers, and building partners.

These developments are highly uncertain and outside of our control.

To the extent an epidemic, pandemic or similar public health issue has a significant adverse effect on the U.S.

economy, our business, results of operations, financial condition and/or cash flows could be materially adversely effected.

UNRESOLVED STAFF COMMENTS

economy, our business, results of operations, financial condition and/or cash flows could be materially adversely affected.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors