Guarantees and Indemnifications

Warranty

Our warranty reserve amounts are based upon historical experience and geographic location. Our warranty reserves are included in Other Liabilities in the Company’s Consolidated Balance Sheets. A summary of warranty activity for the years ended December 31, 2015, 2014 and 2013 is as follows:



	Year Ended December 31,
(In thousands)	2015			2014			2013
Warranty reserves, beginning of period	$	12,671		$	12,291		$	10,438
Warranty expense on homes delivered during the period	8,812			7,311			7,023
Changes in estimates for pre-existing warranties	5,160			5,223			2,394
Settlements made during the period	(12,361		)	(12,154		)	(7,564		)
Warranty reserves, end of period	$	14,282		$	12,671		$	12,291

Guarantees

In the ordinary course of business, M/I Financial, a 100%-owned subsidiary of M/I Homes, Inc., enters into agreements that guarantee certain purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately $12.2 million and $33.4 million were covered under the above guarantees as of December 31, 2015 and 2014, respectively. The decrease in loans covered by these guarantees from December 31, 2014 is a result of a change in the mix of investors and their related purchase terms. A portion of the revenue paid to M/I Financial for providing the guarantees on the above loans was deferred at December 31, 2015, and will be recognized in income as M/I Financial is released from its obligation under the guarantees. M/I Financial did not repurchase any loans under the above agreements during 2015. The risk associated with the guarantees above is offset by the value of the underlying assets.

M/I Financial received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling approximately $1.3 million and $9.1 million at December 31, 2015 and 2014, respectively. The risk associated with the guarantees above is offset by the value of the underlying assets. The decrease from December 31, 2014 was due to M/I Financial reaching a settlement agreement with two of its investors during the first and fourth quarter of 2015 which substantially eliminated any liability to repurchase or indemnify loans associated with the related loan purchase agreements.

M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. As of December 31, 2015 and 2014, the total of all loans indemnified to third party insurers relating to the above agreements was $2.2 million and $2.0 million, respectively. The maximum potential amount of future payments is equal to the outstanding loan value less the value of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.

The Company recorded a liability relating to the guarantees described above totaling $1.2 million and $2.9 million at December 31, 2015 and 2014, respectively, which is management’s best estimate of the Company’s liability.