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Note 10 - Mortgage Loans Held for Sale

3 Months Ended

Jan. 31, 2023

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

10. Mortgage Loans Held for Sale

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”), originates mortgage loans, primarily from the sale of our homes. Such mortgage loans are sold in the secondary mortgage market within a short period of time of origination. Mortgage loans held for sale are collateralized by the underlying property. Loans held for sale are recorded at fair value with the changes in the value recognized in the Condensed Consolidated Statements of Operations in “Financial services” revenue. We currently use forward sales of mortgage-backed securities (“MBS”), interest rate commitments from borrowers and forward commitments to sell loans to third parties to protect us from interest rate fluctuations. 

At January 31, 2023 and October 31, 2022, $58.0 million and $92.5 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 11). We may incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are not covered by mortgage insurance or the resale value of the home. The reserves for these estimated losses are included in “Financial services” liabilities on the Condensed Consolidated Balance Sheets. As of both   January 31, 2023 and 2022, we had reserves specifically for 14 identified mortgage loans, as well as reserves for an estimate of future losses on mortgages sold but not yet identified to us.

The activity in our loan origination reserves during the three months ended January 31, 2023 and 2022 was as follows:

		Three Months Ended
		January 31,
(In thousands)		2023				2022
Loan origination reserves, beginning of period		$	1,795			$	1,632
Provisions for losses during the period			32				41
Adjustments to pre-existing provisions for losses from changes in estimates			-				-
Loan origination reserves, end of period		$	1,827			$	1,673

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- References

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- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References

Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 310
-SubTopic 10
-URI https://asc.fasb.org/subtopic&trid=2196772

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