With the release of its third quarter results, Lennar closed on its sixth consecutive quarter of profit. All three of the company's operating units--home building, financial services, and its distressed asset division Rialto--contributed positively to the bottom line, each working in synergy with the others to offer good returns to the balance sheet at every step of the delivery process from the sourcing land deals through the closing of homes. However, continuing reductions in mortgage liquidity remain a constant threat to the company's ability to execute efficiently on all levels.

During a related earnings call Monday morning, CEO Stuart Miller said he was seeing "evidence that the consumer is beginning to return in earnest to the market." This uptick in demand, driven by a combination of affordable home prices, low interest rates, and increasing rental rates, was captured in the company's 11% year-over-year growth in sales during the quarter.

However, Miller said this fledgling demand continued to be constrained by a lack of consumer confidence and what he called "a clear overcorrection in the lending market." The tightening in the credit market traces to both the government's desire to dial down its role in the mortgage market through its financing conduits such as Fannie Mae, Freddie Mac, and the FHA and also traditional lenders being threatened by issues such as mortgage putbacks and new regulatory requirements.

Lennar executives announced that it struck a deal with one of the three main banking partners to reduce its own putback liabilities. The global settlement covers claims on loans originated before 2009. Executives stated that following the agreement, the company had adequate reserves of roughly $7 million to deal with future claims. The company is in negotiations with the other two lender partners for similar deals.

However, the continued tightening in the lending market has knocked a significant number of buyers out of the market. Lennar executives estimated that roughly 20% of buyers who had adequate down payment money and credit scores in the 650 range were being rejected for financing.

Given that the lending market may have overcorrected from its loose lending days, Lennar executives said there were signs that the government was rethinking its pullback from the mortgage market. Expectations were that momentum would continue to gather in that direction as election season moved into full swing.

"My sense is the government will find a way to loosen some of the lending standards that have become too aggressive," said CFO Bruce Gross.

However, with the loan limits on government-backed and government-insured mortgages set to expire on Oct. 1, Lennar management indicated that it anticipated the change to have an adverse effect on demand. Consequently, executives were adjusting operations in affected markets to reduce negative drag.