XML 25 R14.htm IDEA: XBRL DOCUMENT v3.21.2
Financial Instruments and Fair Value Disclosures
 9 Months Ended
Aug. 31, 2021
Fair Value Disclosures [Abstract]  
Financial Instruments and Fair Value Disclosures Financial Instruments and Fair Value Disclosures
The following table presents the carrying amounts and estimated fair values of financial instruments held or issued by the Company at August 31, 2021 and November 30, 2020, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables, net and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
August 31, 2021November 30, 2020
(In thousands)Fair Value HierarchyCarrying AmountFair ValueCarrying AmountFair Value
ASSETS
Financial Services:
Loans held-for-investment, netLevel 3$61,283 61,332 72,626 70,808 
Investments held-to-maturityLevel 3161,532 192,510 164,230 196,047 
LIABILITIES
Homebuilding senior notes and other debts payable, netLevel 2$5,542,513 6,040,708 5,955,758 6,581,798 
Financial Services notes and other debts payable, netLevel 21,106,447 1,107,301 1,463,919 1,464,850 
Lennar Other notes and other debts payable, netLevel 21,906 1,906 1,906 1,906 
The following methods and assumptions are used by the Company in estimating fair values:
Financial Services—The fair values above are based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information. For notes and other debts payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the majority of the borrowings.
Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is primarily based on quoted market prices and the fair value of variable-rate borrowings is based on expected future cash flows calculated using current market forward rates.
Lennar Other—The fair value for notes payable approximate their carrying value due to variable interest pricing terms and the short-term nature of the borrowings.
Fair Value Measurements:
GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:
Level 1: Fair value determined based on quoted prices in active markets for identical assets.
Level 2: Fair value determined using significant other observable inputs.
Level 3: Fair value determined using significant unobservable inputs.
The Company’s financial instruments measured at fair value on a recurring basis are summarized below:
Fair Value HierarchyFair Value at
(In thousands)August 31, 2021November 30, 2020
Financial Services Assets:
Residential loans held-for-saleLevel 2$1,141,460 1,296,517 
LMF Commercial loans held-for-saleLevel 3113,129 193,588 
Mortgage servicing rightsLevel 32,382 2,113 
Lennar Other:
Investments in equity securitiesLevel 1$1,085,571 — 
Investments available-for-saleLevel 341,695 53,497 
Residential and LMF Commercial loans held-for-sale in the table above include:
August 31, 2021November 30, 2020
(In thousands)Aggregate Principal BalanceChange in Fair ValueAggregate Principal BalanceChange in Fair Value
Residential loans held-for-sale$1,103,647 37,813 1,232,548 63,969 
LMF Commercial loans held-for-sale
116,010 (2,881)194,362 (774)
Financial Services residential loans held-for-sale - Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. The Company recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these are included in Financial Services’ loans held-for-sale as of August 31, 2021 and November 30, 2020. Fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics.
LMF Commercial loans held-for-sale - The fair value of loans held-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. The details and methods of the calculation are unchanged from the fair value disclosure in the Company's Notes to the Financial Statements section in its Form 10-K for the year ended November 30, 2020. These methods use unobservable inputs in estimating a discount rate that is used to assign a value to each loan. While the cash payments on the loans are contractual, the discount rate used and assumptions regarding the relative size of each class in the CMBS capital structure can significantly impact the valuation. Therefore, the estimates used could differ materially from the fair value determined when the loans are sold to a securitization trust.
Mortgage servicing rights - Financial Services records mortgage servicing rights when it sells loans on a servicing-retained basis or through the acquisition or assumption of the right to service a financial asset. 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 delinquency rates and are noted below:
Unobservable inputsAs of August 31, 2021As of November 30, 2020
Mortgage prepayment rate14%18%
Discount rate14%12%
Delinquency rate 3%4%
Lennar Other investments in equity securities - The fair value of investments in equity securities was calculated based on independent quoted market prices. The Company’s investments in equity securities were recorded at fair value with all changes in fair value recorded to Lennar Other unrealized gain of the Company’s condensed consolidated statements of operations and comprehensive income (loss).
Lennar Other investments available-for-sale - The fair value of investments available-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. Loan values are calculated by allocating the change in value of an assumed CMBS capital structure to each loan. The value of an assumed CMBS capital structure is calculated, generally, by discounting the cash flows associated with each CMBS class at market interest rates and at the Company’s own estimate of CMBS spreads.
The changes in fair values for Level 1 and Level 2 financial instruments measured on a recurring basis are shown below by financial instrument and financial statement line item:
Three Months EndedNine Months Ended
August 31,August 31,
(In thousands)2021202020212020
Changes in fair value included in Financial Services revenues:
Loans held-for-sale$4,196 2,229 (26,156)6 
Mortgage loan commitments118 (4,534)260 24,177 
Forward contracts1,649 (205)11,934 (1,088)
Changes in fair value included in Lennar Other realized and unrealized gain (loss):
Investments in equity securities$493,671 — 690,791 — 
Changes in fair value included in other comprehensive loss, net of tax:
Lennar Other investments available-for-sale$131 175 (495)(209)
Interest on Financial Services loans held-for-sale and LMF Commercial loans held-for-sale measured at fair value is calculated based on the interest rate of the loans and recorded as revenues in the Financial Services’ statement of operations.
The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements in the Company's Financial Services segment:
Three Months Ended
August 31, 2021August 31, 2020
(In thousands)Mortgage servicing rightsLMF Commercial loans held-for-saleMortgage servicing rightsLMF Commercial loans held-for-sale
Beginning balance$2,602 163,920 1,238 159,885 
Purchases/loan originations56 178,669 563 164,380 
Sales/loan originations sold, including those not settled— (226,357)— (164,527)
Disposals/settlements(127)(4,092)(34)— 
Changes in fair value (2)(149)1,391 (411)(1,165)
Interest and principal paydowns— (402)— (1,542)
Ending balance$2,382 113,129 1,356 157,031 
Nine Months Ended
August 31, 2021August 31, 2020
(In thousands)Mortgage servicing rightsLMF Commercial loans held-for-saleMortgage servicing rightsLMF Commercial loans held-for-sale
Beginning balance$2,113 193,588 24,679 197,224 
Purchases/loan originations499 599,465 1,917 582,030 
Sales/loan originations sold, including those not settled
— (665,062)— (622,251)
Disposals/settlements (1)(1,222)(11,392)(10,231)— 
Changes in fair value (2)992 (2,551)(15,009)2,102 
Interest and principal paydowns— (919)— (2,074)
Ending balance$2,382 113,129 1,356 157,031 
(1)The nine months ended August 31, 2020 include $7.5 million related to the sale of a servicing portfolio.
(2)Changes in fair value for LMF Commercial loans held-for-sale and Financial Services mortgage servicing rights are included in Financial Services' revenues.
The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs. The fair values included in the table below represent only those assets whose carrying values were adjusted to fair value during the respective periods disclosed. The assets measured at fair value on a nonrecurring basis are summarized below:
Three Months Ended
August 31, 2021August 31, 2020
(In thousands)Fair Value
Hierarchy		Carrying ValueFair ValueTotal Losses, Net (1)Carrying ValueFair ValueTotal Losses, Net (1)
Non-financial assets - Homebuilding:
Finished homes and construction in progress (1)Level 3$3,968 2,287 (1,681)20,650 18,089 (2,561)
Land and land under development (1)Level 31,625 862 (763)21,621 12,650 (8,971)
Nine Months Ended
August 31, 2021August 31, 2020
(In thousands)Fair Value
Hierarchy		Carrying ValueFair ValueTotal Losses, Net (1)Carrying ValueFair ValueTotal Losses, Net (1)
Non-financial assets - Homebuilding:
Finished homes and construction in progress (1)Level 3$25,752 11,015 (14,737)162,459 138,493 (23,966)
Land and land under development (1)Level 32,145 862 (1,283)86,683 34,019 (52,664)
(1)Valuation adjustments were included in Homebuilding costs and expenses in the Company's condensed consolidated statements of operations and comprehensive income (loss).
Finished homes and construction in progress are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Form 10-K for the year ended November 30, 2020.
The Company estimates the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause the Company to re-evaluate its strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.
The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Form 10-K for the year ended November 30, 2020. On a quarterly basis, the Company reviews its active communities for indicators of potential impairments. The table below summarizes communities reviewed for indicators of impairment and communities with valuation adjustments recorded:
Communities with valuation adjustments
At or for the Nine Months Ended# of active communities# of communities with potential indicator of impairment# of communities
Fair Value
(in thousands)
Valuation Adjustments
(in thousands)
August 31, 20211,19281$17,117 $11,849 
August 31, 20201,194281476,115 40,364 
The table below summarizes the most significant unobservable inputs used in the Company's discounted cash flow model to determine the fair value of its communities for which the Company recorded valuation adjustments:
Nine Months Ended August 31,
20212020
Unobservable inputsRange
Average selling price$635,000201,000 -970,000
Absorption rate per quarter (homes)113-15
Discount rate20%20%