Note 19 - Disclosures about Fair Value

3 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Text Block]

19.       Disclosures about Fair Value

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate:

Cash and Equivalents—The carrying amount is a reasonable estimate of fair value as these assets primarily consist of short-term investments and demand deposits.

Mortgage Loans Held for Investment—Fair value of these loans is based on the estimated market value of the underlying collateral based on market data and other factors for similar type properties as further adjusted to reflect their estimated net realizable value of carrying the loans through disposition.

Secured Project Debt and Other Notes Payable—These notes are for seller non-recourse financing and community development district and similar assessment district bond financings used to finance land development and infrastructure costs for which we are responsible. The notes were discounted at an interest rate that is commensurate with market rates of similar secured real estate financing.

Senior and Senior Subordinated Notes Payable—The senior and senior subordinated notes are traded over the counter and their fair values were based upon the values of their last trade at the end of the period.

Mortgage Credit Facilities—The carrying amounts of these credit obligations approximate market value because of the frequency of repricing of borrowings.

Mortgage Loan Commitments—These instruments consist of our commitments to sell loans to investors resulting from extending interest rate locks to loan applicants. Fair values of these instruments are based on market rates of similar interest rate locks.

	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets:
Homebuilding:
Cash and equivalents	$	507,207	$	507,207	$	748,754	$	748,754
Financial services:
Cash and equivalents	$	13,152	$	13,152	$	13,725	$	13,725
Mortgage loans held for investment, net	$	9,678	$	9,678	$	9,904	$	9,904
Financial liabilities:
Homebuilding:
Secured project debt and other notes payable	$	4,215	$	4,215	$	4,738	$	4,738
Senior notes payable, net	$	1,274,001	$	1,296,093	$	1,272,977	$	1,283,611
Senior subordinated notes payable, net	$	44,348	$	51,152	$	42,539	$	51,369
Financial services:
Mortgage credit facilities	$	34,873	$	34,873	$	30,344	$	30,344
Off-balance sheet financial instruments:
Mortgage loan commitments	$	36,669	$	37,474	$	25,126	$	25,543

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a framework for measuring fair value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Further, ASC 820 requires us to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:

•    Level 1 – quoted prices for identical assets or liabilities in active markets;

•    Level 2 – quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•    Level 3 – valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following assets have been measured at fair value in accordance with ASC 820 for the six months ended June 30, 2011:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in			Significant Other			Significant
			Active Markets for			Observable			Unobservable
	As of		Identical Assets			Inputs			Inputs
Description	June 30, 2011		(Level 1)			(Level 2)			(Level 3)
	(Dollars in thousands)
Assets:
Inventories owned	$	7,782		$	―		$	―		$	7,782
Mortgage loans held for sale	$	38,355		$	―		$	38,355		$	―

Inventories Owned—Represents the aggregate fair values for projects that were impaired during the six months ended June 30, 2011, as of the date that the fair value measurements were made.  The carrying value for these projects may have subsequently increased or decreased due to activities that have occurred since the measurement date.  In accordance with ASC 360, during the six months ended June 30, 2011, inventories owned with a carrying amount of $13.8 million were determined to be impaired and were written down to their estimated fair value of $7.8 million, resulting in an impairment charge of $6.0 million.  These impairment charges were included in cost of sales in the accompanying condensed consolidated statements of operations.  The fair values for projects that were impaired were determined using Level 3 inputs, which were included in an estimated land residual value analysis and a discounted cash flow analysis.  The projected land residual and cash flow for each community are significantly impacted by estimates related to local economic and market trends, sales pace, net sales prices, development and construction timelines, construction and development costs, sales and marketing expenses, and other project specific costs.  The operating margin (defined as gross margin less direct selling and marketing costs) used to calculate land residual values and related fair values for the projects impaired during the six months ended June 30, 2011, was 10% and discount rates were approximately 20% to 30%.

Mortgage Loans Held for Sale—These consist of FHA, VA, USDA and agency first mortgages on single-family residences which are eligible for sale to FNMA/FHLMC, GNMA or other investors, as applicable.  Fair values of these loans are based on quoted prices from third party investors when preselling loans.