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Lennar Financial Services Segment
6 Months Ended
May 31, 2014
Lennar Financial Services Segment [Abstract]  
Lennar Financial Services Segment
Lennar Financial Services Segment
The assets and liabilities related to the Lennar Financial Services segment were as follows:
(In thousands)
May 31,
2014
 
November 30,
2013
Assets:
 
 
 
Cash and cash equivalents
$
86,164

 
73,066

Restricted cash
5,693

 
10,283

Receivables, net (1)
120,888

 
127,223

Loans held-for-sale (2)
467,786

 
414,231

Loans held-for-investment, net
26,787

 
26,356

Investments held-to-maturity
56,806

 
62,344

Goodwill
38,854

 
34,046

Other (3)
62,930

 
49,161

 
$
865,908

 
796,710

Liabilities:
 
 
 
Notes and other debts payable
$
465,875

 
374,166

Other (4)
172,813

 
169,473

 
$
638,688

 
543,639

(1)
Receivables, net primarily relate to loans sold to investors for which the Company had not yet been paid as of May 31, 2014 and November 30, 2013, respectively.
(2)
Loans held-for-sale relate to unsold loans carried at fair value.
(3)
Other assets include mortgage loan commitments carried at fair value of $15.0 million and $7.3 million as of May 31, 2014 and November 30, 2013, respectively. Other assets also includes forward contracts carried at fair value of $1.4 million as of November 30, 2013. In addition, other assets include mortgage servicing rights carried at fair value of $18.2 million and $11.5 million as of May 31, 2014 and November 30, 2013, respectively.
(4)
Other liabilities include $73.2 million and $74.5 million as of May 31, 2014 and November 30, 2013, respectively, of certain of the Company’s self-insurance reserves related to general liability and workers’ compensation. Other liabilities also include forward contracts carried at fair value of $6.3 million as of May 31, 2014.
At May 31, 2014, the Lennar Financial Services segment warehouse facilities were as follows:
(In thousands)
Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures November 2014
$
325,000

364-day warehouse repurchase facility that matures February 2015 (1)
300,000

364-day warehouse repurchase facility that matures February 2015
150,000

Totals
$
775,000

(1)
Maximum aggregate commitment includes a $100 million accordion feature that is usable 10 days prior to quarter-end through 20 days after quarter end.
In June 2014, the Lennar Financial Services segment entered into a new 364-day warehouse repurchase facility with a maximum aggregate commitment of $150.0 million (including a $50.0 million accordion feature that is usable 10 days prior to quarter-end through 20 days after quarter end) that matures in June 2015.
The Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and expects the facilities to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $465.9 million and $374.2 million at May 31, 2014 and November 30, 2013, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $486.6 million and $452.5 million at May 31, 2014 and November 30, 2013, respectively. If the facilities are not renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.
The Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. During recent years there has been an increased industry-wide effort by purchasers to defray their losses in an unfavorable economic environment by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. The Company’s mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes reserves for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans, as well as previous settlements. While the Company believes that it has adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed the Company’s expectations, additional recourse expense may be incurred. Loan origination liabilities are included in Lennar Financial Services’ liabilities in the Company's condensed consolidated balance sheets. The activity in the Company’s loan origination liabilities was as follows:
 
Three Months Ended
 
Six Months Ended
 
May 31,
 
May 31,
(In thousands)
2014
 
2013
 
2014
 
2013
Loan origination liabilities, beginning of period
$
9,585

 
7,606

 
9,311

 
7,250

Provision for losses during the period
449

 
360

 
742

 
773

Adjustments to pre-existing provisions for losses from changes in estimates

 
428

 

 
524

Payments/settlements
(260
)
 
(137
)
 
(279
)
 
(290
)
Loan origination liabilities, end of period
$
9,774

 
8,257

 
9,774

 
8,257


For Lennar Financial Services loans held-for-investment, net, a loan is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Interest income is not accrued or recognized on impaired loans unless payment is received. Impaired loans are written-off if and when the loan is no longer secured by collateral. The total unpaid principal balance of the impaired loans was as follows:
(In thousands)
May 31,
2014
 
November 30,
2013
Impaired loans unpaid principal balance
$
7,635

 
7,897

Valuation allowance
(3,756
)
 
(3,891
)
Investment in impaired loans
$
3,879

 
4,006


The average recorded investment in impaired loans totaled $3.8 million and $3.9 million for the three and six months ended May 31, 2014, respectively. The average recorded investment in impaired loans totaled $3.6 million and $3.3 million for the three and six months ended May 31, 2013, respectively.
In April 2014, the Lennar Financial Services segment acquired a Colorado-based mortgage company. At acquisition date the provisional fair value of the assets acquired were $1.4 million and the provisional goodwill recorded was $4.8 million.