Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of [Buck Horn – Raymond James].
[Buck Horn – Raymond James]
I was wondering if you could talk a little bit about the reserves a little bit further, specifically on the warranty side. Several quarters in a row now where we've seen benefits from the warranty reserves. Maybe you can help explain exactly what's going on, and is this basically going to end anytime soon? Are we going to see continued benefits to the gross margin from warranty reserves coming back?
And then on loan loss reserve from the Financial Services Division, I'm just wondering what the risk is necessarily or why does such a large reserve need to be taken given how much of your originations are government insured or their conforming products. I'm wondering what the major risks are there.
Chris Anderson
Buck, this is Chris. I'll give you a couple points on the warranty piece. There were two things that impacted warranty reserves this time. One was actually just a settlement of some prior construction defects in Nevada. That was about $7 million of the $10 million in warranty adjustments. So the ongoing revenue adjustments that you've seen over the last few quarters were really only about 2.6, the 7 was a distinct item that happened as a result of resolving some construction defects from several years back.
And will that continue? I think what we've seen is our warranty payment experience is what informs us of what we think our expected expenditures will be going forward. We think that we've done a good job on improving the quality of our homes and improving our customer experience over the last several years and I think it's – I'm not going to project out what I think is going to happen to that, but we've seen a downward trend in our warranty payment experience and that's what's been driving it up.
On the loan loss reserve, we have watched this carefully and the loan loss reserve primarily relates to loans that were underwritten and originated in prior years, not the most recent 12 to 18 months. So they're really related to older loans that ultimately have made their way through all of the foreclosure process and have now come back in the form of demands.
As we disclosed in our 10-Q, we carefully evaluate that and take all of the inputs that we have to make the best estimate that we have and we think at this point that's our best estimate for our exposure on loans previously sold.
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