Consumer Loans Receivable

The Company acquired consumer loans receivable during the first quarter of fiscal 2012 as part of the Palm Harbor transaction. Acquired consumer loans receivable held for investment were acquired at fair value and subsequently are accounted for in a manner similar to Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). Consumer loans receivable held for sale are carried at the lower of cost or market and construction advances are carried at the amount advanced less a valuation allowance. The following table summarizes consumer loans receivable (in thousands):



	September 26, 2015			March 28, 2015
Loans held for investment (acquired on Palm Harbor Acquisition Date)	$	73,233		$	77,670
Loans held for investment (originated after Palm Harbor Acquisition Date)	5,633			5,005
Loans held for sale	9,779			11,903
Construction advances	5,206			4,076
Consumer loans receivable	93,851			98,654
Deferred financing fees and other, net	(709		)	(496		)
Consumer loans receivable, net	$	93,142		$	98,158

As of the date of the Palm Harbor acquisition, management evaluated consumer loans receivable held for investment by CountryPlace to determine whether there was evidence of deterioration of credit quality and if it was probable that CountryPlace would be unable to collect all amounts due according to the loans' contractual terms. The Company also considered expected prepayments and estimated the amount and timing of undiscounted expected principal, interest and other cash flows. The Company determined the excess of the loan pool's scheduled contractual principal and contractual interest payments over all cash flows expected as of the date of the Palm Harbor transaction as an amount that cannot be accreted into interest income (the non-accretable difference). The cash flow expected to be collected in excess of the carrying value of the acquired loans is accreted into interest income over the remaining life of the loans (referred to as accretable yield). Interest income on consumer loans receivable is recognized as net revenue.



	September 26, 2015			March 28, 2015
	(in thousands)
Consumer loans receivable held for investment – contractual amount	$	179,261		$	192,523
Purchase discount
Accretable	(70,450		)	(73,202		)
Non-accretable	(35,241		)	(41,305		)
Less consumer loans receivable reclassified as other assets	(337		)	(346		)
Total acquired consumer loans receivable held for investment, net	$	73,233		$	77,670

Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected by CountryPlace. As of the balance sheet date, the Company evaluates whether the present value of expected cash flows, determined using the effective interest rate, has decreased from the value at acquisition and, if so, recognizes an allowance for loan loss. The present value of any subsequent increase in the loan pool's actual cash flows expected to be collected is used first to reverse any existing allowance for loan loss. Any remaining increase in cash flows expected to be collected adjusts the amount of accretable yield recognized on a prospective basis over the loan pool's remaining life. The weighted averages of assumptions used in the calculation of expected cash flows to be collected are as follows:



	September 26, 2015		March 28, 2015
Prepayment rate	13.1	%	12.6	%
Default rate	1.3	%	1.7	%

Assuming there were a 1% unfavorable variation from the expected level, for each key assumption, the expected cash flows, as of September 26, 2015, would decrease by approximately $2.3 million and $6.0 million for the expected prepayment rate and expected default rate, respectively.

The changes in accretable yield on acquired consumer loans receivable held for investment were as follows (in thousands):



	Three Months Ended						Six Months Ended
	September 26, 2015			September 27, 2014			September 26, 2015			September 27, 2014
Balance at the beginning of the period	$	70,261		$	74,794		$	73,202		$	77,737
Accretion	(2,685		)	(2,849		)	(5,436		)	(5,744		)
Reclassifications from non-accretable discount	2,874			3,356			2,684			3,308
Balance at the end of the period	$	70,450		$	75,301		$	70,450		$	75,301

The consumer loans held for investment have the following characteristics:



	September 26, 2015		March 28, 2015
Weighted average contractual interest rate	9.08	%	9.10	%
Weighted average effective interest rate	9.41	%	9.27	%
Weighted average months to maturity	174		178

The Company's consumer loans receivable balance consists of fixed-rate, fixed-term and fully-amortizing single-family home loans. These loans are either secured by a manufactured home, excluding the land upon which the home is located (chattel property loans and retail installment sale contracts), or by a combination of the home and the land upon which the home is located (real property mortgage loans). The real property mortgage loans are primarily for manufactured homes. Combined land and home loans are further disaggregated by the type of loan documentation: those conforming to the requirements of Government-Sponsored Enterprises ("GSEs"), and those that are non-conforming. In most instances, CountryPlace's loans are secured by a first-lien position and are provided for the consumer purchase of a home. In rare instances, CountryPlace may provide other types of loans in second-lien or unsecured positions. Accordingly, CountryPlace classifies its loans receivable as follows: chattel loans, conforming mortgages, non-conforming mortgages and other loans.

In measuring credit quality within each segment and class, CountryPlace uses commercially available credit scores (such as FICO®). At the time of each loan's origination, CountryPlace obtains credit scores from each of the three primary credit bureaus, if available. To evaluate credit quality of individual loans, CountryPlace uses the mid-point of the available credit scores or, if only two scores are available, the Company uses the lower of the two. CountryPlace does not update credit bureau scores after the time of origination.

The following table disaggregates CountryPlace's gross consumer loans receivable as of September 26, 2015, for each class by portfolio segment and credit quality indicator as of the time of origination (in thousands):



	Consumer Loans Held for Investment
	Securitized 2005		Securitized 2007		Unsecuritized		Construction Advances		Consumer Loans Held For Sale		Total
Asset Class
Credit Quality Indicator
Chattel loans
0-619	$	836	$	567	$	356	$	—	$	—	$	1,759
620-719	14,068		9,619		3,272		—		—		26,959
720+	15,708		10,272		2,575		—		—		28,555
Other	61		—		458		—		—		519
Subtotal	30,673		20,458		6,661		—		—		57,792
Conforming mortgages
0-619	—		—		166		217		978		1,361
620-719	—		—		1,520		3,190		5,329		10,039
720+	—		—		9		1,799		3,255		5,063
Other	—		—		—		—		217		217
Subtotal	—		—		1,695		5,206		9,779		16,680
Non-conforming mortgages
0-619	89		599		1,466		—		—		2,154
620-719	1,442		5,480		3,911		—		—		10,833
720+	1,712		3,515		834		—		—		6,061
Other	—		—		316		—		—		316
Subtotal	3,243		9,594		6,527		—		—		19,364
Other loans
Subtotal	—		—		15		—		—		15
	$	33,916	$	30,052	$	14,898	$	5,206	$	9,779	$	93,851

Loan contracts secured by collateral that is geographically concentrated could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed. Thirty-eight percent of the outstanding principal balance of consumer loans receivable portfolio is concentrated in Texas. Other than Texas, no other state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of September 26, 2015.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the lesser of the related loan balance or the estimated fair value of the home, less the costs to sell. At repossession, the fair value of the collateral is computed based on the historical recovery rates of previously charged-off loans; the loan is charged off and the loss is charged to the allowance for loan losses. On a monthly basis, the fair value of the collateral is adjusted to the lower of cost or estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled approximately $362,000 and $582,000 as of September 26, 2015 and March 28, 2015, respectively, and are included in prepaid and other assets in the consolidated balance sheet. Foreclosure or similar proceedings in progress totaled approximately $411,000 and $650,000 as of September 26, 2015 and March 28, 2015, respectively.