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Note 10 - Mortgage Loans Held for Sale

9 Months Ended

Jul. 31, 2024

Mortgage Loans Held for Sale

Mortgage Loans Held for Sale

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 changes in the value recognized in the Condensed Consolidated Statements of Operations in “Financial services” revenue. We 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. 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 July 31, 2024 and October 31, 2023, $140.1 million and $127.7 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. At both July 31, 2024 and October 31, 2023, we had specific reserves 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 during the three and nine months ended July 31, 2024 and 2023 were as follows:

		Three Months Ended								Nine Months Ended
		July 31,								July 31,
(In thousands)		2024				2023					2024				2023
Loan origination reserves, beginning of period		$	2,034			$	1,906			$	2,013			$	1,795
Provisions for losses during the period			60				50				162				127
Adjustments to pre-existing provisions for losses from changes in estimates			-				-				(81	)			34
Loan origination reserves, end of period		$	2,094			$	1,956			$	2,094			$	1,956

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- References

No definition available.

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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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