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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2015
Fair Value Measurements [Abstract] |
Fair Value Disclosures [Text Block] | Fair Value Measurements There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets Measured on a Recurring Basis The Company measures both mortgage loans held for sale and interest rate lock commitments (“IRLCs”) at fair value. Fair value measurement results in a better presentation of the changes in fair values of the loans and the derivative instruments used to economically hedge them. In the normal course of business, our financial services segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within established time frames. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. The Company does not engage in speculative trading or derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers or investors are undesignated derivatives, and accordingly, are marked to fair value through earnings. Changes in fair value measurements are included in earnings in the accompanying statements of income. The fair value of mortgage loans held for sale is estimated based primarily on published prices for mortgage-backed securities with similar characteristics. To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. The Company generally sells loans on a servicing released basis, and receives a servicing release premium upon sale. Thus, the value of the servicing rights included in the fair value measurement is based upon contractual terms with investors and depends on the loan type. The Company applies a fallout rate to IRLCs when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on management’s judgment and company experience. The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value. Interest Rate Lock Commitments. IRLCs are extended to certain home-buying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a duration of less than six months; however, in certain markets, the duration could extend to twelve months. Some IRLCs are committed to a specific third party investor through the use of best-efforts whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings. Forward Sales of Mortgage-Backed Securities. Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings. Mortgage Loans Held for Sale. Mortgage loans held for sale consists primarily of single-family residential loans collateralized by the underlying property. Generally, all of the mortgage loans and related servicing rights are sold to third-party investors shortly after origination. During the intervening period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a best-efforts contract or by FMBSs. The FMBSs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings. The table below shows the notional amounts of our financial instruments at September 30, 2015 and December 31, 2014:
Description of Financial Instrument (in thousands) | September 30, 2015 |  | December 31, 2014
Best efforts contracts and related committed IRLCs | $ | 5,554 |  |  | $ | 3,072 |
Uncommitted IRLCs | 79,604 |  |  | 28,028 |
FMBSs related to uncommitted IRLCs | 80,000 |  |  | 41,000 |
Best efforts contracts and related mortgage loans held for sale | 11,057 |  |  | 61,233 |
FMBSs related to mortgage loans held for sale | 64,000 |  |  | 27,000 |
Mortgage loans held for sale covered by FMBSs | 63,977 |  |  | 26,825 |
The table below shows the level and measurement of assets and liabilities measured on a recurring basis at September 30, 2015 and December 31, 2014:
Description of Financial Instrument (in thousands) | Fair Value Measurements September 30, 2015 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Mortgage loans held for sale | $ | 77,550 |  |  | $ | — |  |  | $ | 77,550 |  |  | $ | — |  |
Forward sales of mortgage-backed securities | (1,270 | ) |  | — |  |  | (1,270 | ) |  | — |  |
Interest rate lock commitments | 985 |  |  | — |  |  | 985 |  |  | — |  |
Best-efforts contracts | (201 | ) |  | — |  |  | (201 | ) |  | — |  |
Total | $ | 77,064 |  |  | $ | — |  |  | $ | 77,064 |  |  | $ | — |  |
Description of Financial Instrument (in thousands) | Fair Value Measurements December 31, 2014 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Mortgage loans held for sale | $ | 92,794 |  |  | $ | — |  |  | $ | 92,794 |  |  | $ | — |  |
Forward sales of mortgage-backed securities | (182 | ) |  | — |  |  | (182 | ) |  | — |  |
Interest rate lock commitments | 288 |  |  | — |  |  | 288 |  |  | — |  |
Best-efforts contracts | 53 |  |  | — |  |  | 53 |  |  | — |  |
Total | $ | 92,953 |  |  | $ | — |  |  | $ | 92,953 |  |  | $ | — |  |
The following table sets forth the amount of gain (loss) recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Income, on assets and liabilities measured on a recurring basis for the three and nine months ended September 30, 2015 and 2014:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
Description (in thousands) | 2015 |  | 2014 |  | 2015 |  | 2014
Mortgage loans held for sale | $ | 1,585 |  |  | $ | (959 | ) |  | $ | 761 |  |  | $ | 2,556 |
Forward sales of mortgage-backed securities | (2,520 | ) |  | 398 |  |  | (1,088 | ) |  | (786 | )
Interest rate lock commitments | 924 |  |  | (144 | ) |  | 696 |  |  | 753 |
Best-efforts contracts | (125 | ) |  | 164 |  |  | (253 | ) |  | (428 | )
Total (loss) gain recognized | $ | (136 | ) |  | $ | (541 | ) |  | $ | 116 |  |  | $ | 2,095 |
The following tables set forth the fair value of the Company’s derivative instruments and their location within the Unaudited Condensed Consolidated Balance Sheets for the periods indicated (except for mortgage loans held for sale which is disclosed as a separate line item):
|  | Asset Derivatives |  | Liability Derivatives
|  | September 30, 2015 |  | September 30, 2015
Description of Derivatives |  | Balance Sheet Location |  | Fair Value (in thousands) |  | Balance Sheet Location |  | Fair Value (in thousands)
Forward sales of mortgage-backed securities |  | Other assets |  | $ | — |  |  | Other liabilities |  | $ | 1,270 |
Interest rate lock commitments |  | Other assets |  | 985 |  |  | Other liabilities |  | — |
Best-efforts contracts |  | Other assets |  | — |  |  | Other liabilities |  | 201 |
Total fair value measurements |  |  |  | $ | 985 |  |  |  |  | $ | 1,471 |
|  | Asset Derivatives |  | Liability Derivatives
|  | December 31, 2014 |  | December 31, 2014
Description of Derivatives |  | Balance Sheet Location |  | Fair Value (in thousands) |  | Balance Sheet Location |  | Fair Value (in thousands)
Forward sales of mortgage-backed securities |  | Other assets |  | $ | — |  |  | Other liabilities |  | $ | 182 |
Interest rate lock commitments |  | Other assets |  | 288 |  |  | Other liabilities |  | — |
Best-efforts contracts |  | Other assets |  | 58 |  |  | Other liabilities |  | 5 |
Total fair value measurements |  |  |  | $ | 346 |  |  |  |  | $ | 187 |
Assets Measured on a Non-Recurring Basis Inventory. The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Inventory” in the Company’s 2014 Form 10-K for additional information regarding the Company’s methodology for determining fair value. The Company uses significant assumptions to evaluate the recoverability of its inventory, such as estimated average selling price, construction and development costs, absorption pace (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates. Changes in these assumptions could materially impact future cash flow and fair value estimates and may lead the Company to incur additional impairment charges in the future. Our analysis is conducted only if indicators of a decline in value of our inventory exist, which include, among other things, declines in gross margin on sales contracts in backlog or homes that have been delivered, slower than anticipated absorption pace, declines in average sales price or high incentive offers by management to improve absorptions, declines in margins regarding future land sales, or declines in the value of the land itself as a result of third party appraisals. If communities are not recoverable based on the estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The table below shows the level and measurement of the Company's assets measured on a non-recurring basis as of and for the three and nine months ended September 30, 2015 and 2014:
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Description (in thousands) |  | Hierarchy | 2015 |  | 2014 (2) |  | 2015 |  | 2014 (2)
Adjusted basis of inventory (1) |  | Level 3 | $ | — |  |  | $ | 76 |  |  | $ | — |  |  | $ | 1,605 |
Total losses |  |  | — |  |  | 622 |  |  | — |  |  | 1,426 |
Initial basis of inventory |  |  | $ | — |  |  | $ | 698 |  |  | $ | — |  |  | $ | 3,031 |
(1) | The fair values in the table above represent only assets whose carrying values were adjusted in the respective period.
(2) | The carrying values for these assets may have subsequently increased or decreased from the fair value reported due to activities that have occurred since the measurement date.
Investment In Unconsolidated Joint Ventures. We evaluate our investments in unconsolidated joint ventures for impairment on a quarterly basis based on the difference in the investment’s carrying value and its fair value at the time of the evaluation. If the Company has determined that the decline in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. Determining the fair value of investments in unconsolidated joint ventures involves a number of variables, estimates and assumptions, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Investment in Unconsolidated Joint Ventures” in the Company’s 2014 Form 10-K for additional information regarding the Company’s methodology for determining fair value. Because of the high degree of judgment involved in developing these assumptions, it is possible that changes in these assumptions could materially impact future cash flow and fair value estimates of the investments which may lead the Company to incur additional impairment charges in the future. During the three and nine months ended September 30, 2015 and 2014, the Company did not record any impairment charges on its investments in unconsolidated joint ventures. Financial Instruments Counterparty Credit Risk. To reduce the risk associated with losses that would be recognized if counterparties failed to perform as contracted, the Company limits the entities with whom management can enter into commitments. This risk of accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which the Company committed. The following table presents the carrying amounts and fair values of the Company’s financial instruments at September 30, 2015 and December 31, 2014. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
|  | September 30, 2015 |  | December 31, 2014
(In thousands) |  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Assets: |  |  |  |  |  |  |  |
Cash, cash equivalents and restricted cash |  | $ | 28,126 |  |  | $ | 28,126 |  |  | $ | 22,486 |  |  | $ | 22,486 |
Mortgage loans held for sale |  | 77,550 |  |  | 77,550 |  |  | 92,794 |  |  | 92,794 |
Split dollar life insurance policies |  | 202 |  |  | 202 |  |  | 187 |  |  | 187 |
Notes receivable |  | 3,172 |  |  | 3,107 |  |  | 4,288 |  |  | 3,793 |
Commitments to extend real estate loans |  | 985 |  |  | 985 |  |  | 289 |  |  | 289 |
Best-efforts contracts for committed IRLCs and mortgage loans held for sale |  | — |  |  | — |  |  | 58 |  |  | 58 |
Liabilities: |  |  |  |  |  |  |  |
Notes payable - homebuilding operations |  | 156,100 |  |  | 156,100 |  |  | 30,000 |  |  | 30,000 |
Notes payable - financial services operations |  | 73,239 |  |  | 73,239 |  |  | 85,379 |  |  | 85,379 |
Notes payable - other |  | 9,363 |  |  | 10,201 |  |  | 9,518 |  |  | 9,089 |
Convertible senior subordinated notes due 2017 |  | 57,500 |  |  | 63,969 |  |  | 57,500 |  |  | 67,634 |
Convertible senior subordinated notes due 2018 |  | 86,250 |  |  | 84,956 |  |  | 86,250 |  |  | 87,544 |
Senior notes due 2018 |  | 228,769 |  |  | 234,025 |  |  | 228,469 |  |  | 239,488 |
Best-efforts contracts for committed IRLCs and mortgage loans held for sale |  | 201 |  |  | 201 |  |  | — |  |  | — |
Forward sales of mortgage-backed securities |  | 1,270 |  |  | 1,270 |  |  | 182 |  |  | 182 |
Off-Balance Sheet Financial Instruments: |  |  |  |  |  |  |  |
Letters of credit |  | — |  |  | 837 |  |  | — |  |  | 881 |
The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments at September 30, 2015 and December 31, 2014: Cash, Cash Equivalents and Restricted Cash. The carrying amounts of these items approximate fair value because they are short-term by nature. Mortgage Loans Held for Sale, Forward Sales of Mortgage-Backed Securities, Commitments to Extend Real Estate Loans, Best-Efforts Contracts for Committed IRLCs and Mortgage Loans Held for Sale, 2017 Convertible Senior Subordinated Notes, 2018 Convertible Senior Subordinated Notes and 2018 Senior Notes. The fair value of these financial instruments was determined based upon market quotes at September 30, 2015 and December 31, 2014. The market quotes used were quoted prices for similar assets or liabilities along with inputs taken from observable market data by correlation. The inputs were adjusted to account for the condition of the asset or liability. Split Dollar Life Insurance Policies and Notes Receivable. The estimated fair value was determined by calculating the present value of the amounts based on the estimated timing of receipts using discount rates that incorporate management’s estimate of risk associated with the corresponding note receivable. Notes Payable - Homebuilding Operations. The interest rate available to the Company during the quarter ended September 30, 2015 fluctuated with the Alternate Base Rate or the Eurodollar Rate for the Company’s $400 million unsecured revolving credit facility dated July 18, 2013, as amended on October 20, 2014 (the “Credit Facility”), and thus the carrying value is a reasonable estimate of fair value. Refer to Note 7 for additional information regarding the Credit Facility. Notes Payable - Financial Services Operations. M/I Financial, LLC (“M/I Financial”) is a party to two credit agreements: (1) a $110 million secured mortgage warehousing agreement, dated March 29, 2013, as most recently amended on June 26, 2015 (the “MIF Mortgage Warehousing Agreement”); and (2) a $15 million mortgage repurchase agreement dated November 13, 2012, as most recently amended on November 4, 2014 (the “MIF Mortgage Repurchase Facility”). For each of these credit facilities, the interest rate is based on a variable rate index, and thus their carrying value is a reasonable estimate of fair value. The interest rate available to M/I Financial during the third quarter of 2015 fluctuated with LIBOR. Refer to Note 7 for additional information regarding the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility. Notes Payable - Other. The estimated fair value was determined by calculating the present value of the future cash flows using the Company’s current incremental borrowing rate. Letters of Credit. Letters of credit of $37.7 million and $33.6 million represent potential commitments at September 30, 2015 and December 31, 2014, respectively. The letters of credit generally expire within one or two years. The estimated fair value of letters of credit was determined using fees currently charged for similar agreements.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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