Lennar Financial Services Segment

The assets and liabilities related to the Lennar Financial Services segment were as follows:



(In thousands)	May 31, 2012		November 30, 2011
Assets:
Cash and cash equivalents	$	69,312	55,454
Restricted cash	15,294		16,319
Receivables, net (1)	125,268		220,546
Loans held-for-sale (2)	267,969		303,780
Loans held-for-investment, net	23,402		24,262
Investments held-to-maturity	48,609		48,860
Goodwill	34,046		34,046
Other (3)	45,516		36,488
	$	629,416	739,755
Liabilities:
Notes and other debts payable	$	263,472	410,134
Other (4)	166,966		152,601
	$	430,438	562,735


(1)	Receivables, net primarily relate to loans sold to investors for which the Company had not yet been paid as of May 31, 2012 and November 30, 2011, 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 $11.4 million and $4.2 million, respectively, as of May 31, 2012 and November 30, 2011.


(4)	Other liabilities include $78.3 million and $75.4 million, 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 $5.4 million and $1.4 million as of May 31, 2012 and November 30, 2011, respectively.

At May 31, 2012, the Lennar Financial Services segment had a 364-day warehouse repurchase facility with a maximum aggregate commitment of $100 million and an additional uncommitted amount of $52 million that matures in February 2013, and another 364-day warehouse repurchase facility with a maximum aggregate commitment of $175 million that matures in July 2012. As of May 31, 2012, the maximum aggregate commitment and uncommitted amount under these facilities totaled $275 million and $52 million, respectively. Subsequent to May 31, 2012, the Lennar Financial Services segment entered into an additional 364-day warehouse repurchase facility with a maximum aggregate commitment of $75 million and an additional uncommitted amount of $75 million that matures in June 2013.

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 were $263.5 million and $410.1 million, respectively, at May 31, 2012 and November 30, 2011, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $275.6 million and $431.6 million, respectively, at May 31, 2012 and November 30, 2011. 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.

Substantially all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market 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 agreement. 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 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)	2012			2011	2012		2011
Loan origination liabilities, beginning of period	$	5,961		9,872	6,050		9,872
Provision for losses during the period	122			59	215		129
Adjustments to pre-existing provisions for losses from changes in estimates	245			20	253		(50	)
Payments/settlements	(130		)	—	(320	)	—
Loan origination liabilities, end of period	$	6,198		9,951	6,198		9,951

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 as of May 31, 2012 and November 30, 2011 was $8.2 million and $8.8 million, respectively. At May 31, 2012, the recorded investment in the impaired loans with a valuation allowance was $3.2 million, net of an allowance of $5.0 million. At November 30, 2011, the recorded investment in the impaired loans with a valuation allowance was $3.7 million, net of an allowance of $5.1 million. The average recorded investment in impaired loans totaled $3.3 million and $3.5 million, respectively, for the three and six months ended May 31, 2012. The average recorded investment in impaired loans totaled $4.0 million and $4.2 million, respectively, for the three and six months ended May 31, 2011.