Note G: Fair Values of Financial and Nonfinancial Instruments

Financial Instruments

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. 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. Valuations, therefore, are sensitive to the assumptions used for these items. Fair values represent the Company's best estimates as of the balance sheet date and are 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 value of the senior notes, net of discount, reported at December 31, 2014 and 2013, was $1.4 billion. The aggregate fair values of the senior notes and convertible senior notes were $1.5 billion and $1.6 billion at December 31, 2014 and 2013, respectively. The fair values of the Company's senior notes and convertible senior notes have been determined using quoted market prices (Level 2).

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

	FAIR VALUE AT DECEMBER 31,
(in thousands)	HIERARCHY		2014			2013

Marketable securities, available-for-sale:
U.S. Treasury securities	Level 1	$	350		$	76,504
Obligations of U.S. government agencies	Level 1		–			17,068
Municipal debt securities	Level 2		15,183			32,976
Corporate debt securities	Level 2		–			157,879
Asset-backed securities	Level 2		–			20,489
Time deposits	Level 2		7,511			1,606
Short-term pooled investments	Level 1		–			6,633
Mortgage loans held-for-sale	Level 2		153,366			139,576
Mortgage interest rate lock commitments	Level 2		4,229			5,218
Forward-delivery contracts	Level 2		(2,141	)		2,261

Marketable Securities, Available-for-sale

At December 31, 2014 and 2013, the Company had $23.0 million and $313.2 million, respectively, of marketable securities that were available-for-sale and comprised of U.S. Treasury securities; obligations of U.S. government agencies; municipal debt securities; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. The Company's marketable securities, available-for-sale that were identified as Level 2 were valued based on quoted market prices of similar instruments. (See Note F, "Marketable Securities, Available-for-sale.")

Other Financial Instruments

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 2). 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, 2014 and 2013, contractual principal amounts of mortgage loans held-for-sale totaled $147.9 million and $137.5 million, respectively. The excess of the aggregate fair value over the aggregate unpaid principal balance for mortgage loans held-for-sale measured at fair value totaled $5.4 million and $2.1 million at December 31, 2014 and 2013, respectively. These amounts were included in "Financial services" revenues within the Consolidated Statements of Earnings. At December 31, 2014, the Company held one repurchased loan with payments 90 days or more past due that had an aggregate carrying value of $219,000 and an aggregate unpaid principal balance of $340,000. At December 31, 2013, the Company held two repurchased loans with payments 90 days or more past due that had an aggregate carrying value of $467,000 and an aggregate unpaid principal balance of $738,000.

In accordance with ASC No. 825 ("ASC 825"), "Financial Instruments," the Company elected the fair value option for its IRLCs and its forward delivery contracts. The fair values of IRLCs were included in "Other" assets within the Consolidated Balance Sheets, and the fair values of forward-delivery contracts were included in "Other" assets and "Accrued and other liabilities" within the Consolidated Balance Sheets. Losses realized on the IRLC pipeline, including activity and changes in fair value, totaled $988,000 for the year ended December 31, 2014, compared to gains of $480,000 and $1.4 million for the years ended December 31, 2013 and 2012, respectively. Losses on forward-delivery contracts used to hedge IRLCs totaled $12.6 million, compared to gains on forward-delivery contracts used to hedge IRLCs that totaled $8.8 million for the year ended December 31, 2013, and losses on forward-delivery contracts that totaled $8.1 million for the year ended December 31, 2012. Gains on loan sales totaled $32.3 million, $17.0 million and $26.6 million for the years ended December 31, 2014, 2013 and 2012, respectively. Net gains and losses related to IRLCs, forward-delivery contracts and loan sales were included in "Financial services" revenues within the Consolidated Statements of Earnings.

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, IRLCs and forward-delivery contracts, among other factors, could materially impact these fair values.

Nonfinancial Instruments

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. There were no housing inventory impairments during the years ended December 31, 2014 and 2013. In accordance with ASC No. 330, ("ASC 330"), "Inventory," the fair value of housing inventory that was impaired during 2012 totaled $2.9 million. Impairment charges related to these assets totaled $1.9 million for the year ended December 31, 2012.

There were no impairments recorded on other assets held-for-sale during the year ended December 31, 2014. The fair values of other assets held-for-sale that were impaired during 2013 totaled $596,000 at December 31, 2013. Impairment charges related to these assets totaled $154,000 for the year ended December 31, 2013. The fair values of other assets held-for-sale that were impaired during 2012 totaled $263,000 at December 31, 2012. Impairment charges related to these assets totaled $41,000 for the year ended December 31, 2012.

There were no impairments recorded on investments in joint ventures for the years ended 2014 and 2013. The fair values of investments in joint ventures that were impaired during 2012 totaled $1.3 million at December 31, 2012. Impairment charges related to these assets totaled $40,000 for the year ended December 31, 2012.