Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”), originates mortgage loans, primarily from the sale of our homes. Such mortgage loans and related servicing rights are generally sold in the secondary mortgage market within a short period of time from origination. Mortgage loans held for sale are collateralized by the underlying property. Loans held for sale are recorded at fair value with changes in the value recognized in the Consolidated Statements of Operations in “Financial services” revenue.

At October 31, 2025 and 2024, $107.6 million and $145.7 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 8). We may incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are not covered by mortgage insurance or the resale value of the home. The reserves for these estimated losses are included in “Financial services” liabilities on the Consolidated Balance Sheets. At October 31, 2025 and 2024, we had specific reserves for 9 and 10 identified mortgage loans, respectively, as well as reserves for an estimate of future losses on mortgages sold but not yet identified to us.

The activity in our loan origination reserves in fiscal 2025 and 2024 was as follows:

	*Year Ended*
	*October 31,*
(In thousands)	*2025*			*2024*

Loan origination reserves, beginning of period	$	2,520		$	2,013
Provisions for estimated losses during the period		469			1,134
Payments/settlements		(201	)		(627	)
Adjustments to pre-existing provisions for losses from changes in estimates		(772	)		-
Loan origination reserves, end of period	$	2,016		$	2,520