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Note 7 - Mortgage Loans Held for Sale

12 Months Ended

Oct. 31, 2024

Mortgage Loans Held for Sale

Mortgage Loans Held for Sale

7. 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 Consolidated Statements of Operations in “Financial services” revenue. We use forward sales of  MBS, interest rate commitments from borrowers and mandatory and/or best-efforts forward commitments to sell loans to third-party purchasers to protect us from interest rate fluctuations. These short-term instruments do not require any payments to be made to the counterparty or purchaser in connection with the execution of the commitments.

At October 31, 2024 and 2023, $145.7 million and $127.7 million, respectively, of mortgage loans held for sale were pledged against our mortgage warehouse lines of credit (see Note 8). 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 Consolidated Balance Sheets. At both October 31, 2024 and 2023, we had reserves specifically for 10 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 in fiscal 2024 and 2023 was as follows:

		Year Ended
		October 31,
(In thousands)		2024				2023
Loan origination reserves, beginning of period		$	2,013			$	1,795
Provisions for losses during the period			439				187
Adjustments to pre-existing provisions for losses from changes in estimates			68				31
Loan origination reserves, end of period		$	2,520			$	2,013

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- References

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- Definition

The entire disclosure for claims held for amounts due to 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
-Topic 310
-SubTopic 10
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org/310-10/tableOfContent

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 835
-SubTopic 30
-Name Accounting Standards Codification
-Section 45
-Paragraph 2
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147482925/835-30-45-2

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