The Company's financial instruments are held for purposes other than trading. The fair values of these financial instruments are based on quoted market prices, where available, or are estimated using other valuation techniques. Estimated fair values are significantly affected by the assumptions used. As required by ASC No. 820 ("ASC 820"), "Fair Value Measurements and Disclosures," fair value measurements of financial instruments are categorized as Level 1, Level 2 or Level 3, based on the types of inputs used in estimating fair values.

Level 1 fair values are those determined using quoted market prices in active markets for identical assets or liabilities with no valuation adjustments applied. Level 2 fair values are those determined using directly or indirectly observable inputs in the marketplace that are other than Level 1 inputs. Level 3 fair values are those determined using unobservable inputs, including the use of internal assumptions, estimates or models. Valuation of these items is, therefore, sensitive to the assumptions used. Fair values represent the Company's best estimates as of the balance sheet date, based on existing conditions and available information at the issuance date of these financial statements. Subsequent changes in conditions or available information may change assumptions and estimates.

The carrying values of cash, cash equivalents, restricted cash and secured notes payable are reported in the Consolidated Balance Sheets and approximate their fair values due to their short-term natures and liquidity. The aggregate carrying values of the senior notes, net of discount, reported at December 31, 2011 and 2010, were $820.0 million and $870.9 million, respectively. The aggregate fair values of the senior notes were $824.6 million and $909.5 million at December 31, 2011 and 2010, respectively. The fair values of the Company's senior notes have been determined using quoted market prices.

The following table sets forth the values and methods used for measuring the fair values of financial instruments on a recurring basis:


	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2011			2010

Marketable securities, available-for-sale:
U.S. Treasury securities	Level 1	$	1,555		$	15,863
Obligations of U.S. and local government agencies	Levels 1 and 2		146,820			33,044
Corporate debt securities issued under U.S. government/agency-backed programs	Level 2		1,456			170,990
Corporate debt securities	Level 2		125,666			105,102
Asset-backed securities	Level 2		45,744			7,632
Time deposits	Level 2		25,500			76,312
Short-term pooled investments	Levels 1 and 2		275			28,852
Mortgage loans held-for-sale	Level 2		82,351			9,534
Mortgage interest rate lock commitments	Level 3		3,359			1,496
Forward-delivery contracts	Level 2		(1,235	)		719
Options on futures contracts	Level 1		–			81

At December 31, 2011 and 2010, the Company had $347.0 million and $437.8 million, respectively, of marketable securities that were available-for-sale and comprised of U.S. Treasury securities; obligations of U.S. government and local government agencies; corporate debt backed by U.S. government/agency programs; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. (See Note E, "Marketable Securities, Available-for-sale.")

Options on futures contracts are exchange traded and based on quoted market prices (Level 1). Mortgage loans held-for-sale and forward-delivery contracts are based on quoted market prices of similar instruments (Level 2). IRLCs are valued at their aggregate market price premium or deficit, plus a servicing premium, multiplied by the projected close ratio (Level 3). The market price premium or deficit is based on quoted market prices of similar instruments; the servicing premium is based on contractual investor guidelines for each product; and the projected close ratio is determined utilizing an external modeling system, widely used within the industry, to estimate customer behavior at an individual loan level. At December 31, 2011, contractual principal amounts of mortgage loans held-for-sale totaled $79.7 million, compared to $9.6 million at December 31, 2010. The fair values of mortgage loans held-for-sale, options on futures contracts and IRLCs were included in "Other" assets within the Consolidated Balance Sheets, and forward-delivery contracts were included in "Other" assets and "Accrued and other liabilities" within the Consolidated Balance Sheets. Gains realized on the conversion of IRLCs to loans totaled $16.3 million, $18.4 million and $18.6 million for the years ended December 31, 2011, 2010 and 2009, respectively. The Company recognized an increase of $1.9 million in the fair value of the pipeline of IRLCs for the year ended December 31, 2011, compared to decreases of $559,000 and $120,000 in the fair value of the locked loan pipeline for the years ended December 31, 2010 and 2009, respectively. Offsetting these items, losses from forward-delivery contracts and options on futures contracts used to hedge IRLCs totaled $7.3 million, $6.1 million and $2.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. Net gains and losses related to forward-delivery contracts, options on futures contracts and IRLCs were included in "Financial services" revenues within the Consolidated Statements of Earnings.

At December 31, 2011, the excess of the aggregate fair value over the aggregate unpaid principal balance for mortgage loans held-for-sale measured at fair value was $2.7 million. At December 31, 2010, the excess of the aggregate unpaid principal balance over the aggregate fair value for mortgage loans held-for-sale measured at fair value was $86,000. These amounts were included in "Financial services" revenues within the Consolidated Statements of Earnings. At December 31, 2011, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of $542,000 and an aggregate unpaid principal balance of $623,000. At December 31, 2010, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of $468,000 and an aggregate unpaid principal balance of $592,000.

While recorded fair values represent management's best estimate based on data currently available, future changes in interest rates or in market prices for mortgage loans, among other factors, could materially impact these fair values.

The following table represents a reconciliation of changes in the fair values of Level 3 items (IRLCs) included in "Financial services" revenues within the Consolidated Statements of Earnings:


(in thousands)		2011			2010

Fair value at January 1	$	1,496		$	2,055
Additions		18,831			17,799
Gain realized on conversion to loans		(16,330	)		(18,440	)
Change in valuation of items held		(638	)		82

Fair value at December 31	$	3,359		$	1,496

In accordance with ASC 820, the Company measures certain nonfinancial homebuilding assets at their fair values on a nonrecurring basis. See "Housing Inventories" within Note A, "Summary of Significant Accounting Policies," for further discussion of the valuation of the Company's nonfinancial assets.

The following table summarizes the fair values of the Company's nonfinancial assets that represent the fair values for communities and other homebuilding assets for which the Company recognized noncash impairment charges during the reporting periods:


	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2011		2010

Housing inventory and inventory held-for-sale¹	Level 3	$	9,121	$	28,426
Other assets held-for-sale and investments in joint ventures²	Level 3		2,366		2,822

Total		$	11,487	$	31,248

- 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

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+ Details