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 accordance with 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):



	December 30, 2017			April 1, 2017
Loans held for investment (acquired on Palm Harbor Acquisition Date)	$	54,013		$	60,513
Loans held for investment (originated after Palm Harbor Acquisition Date)	17,956			11,108
Loans held for sale	12,361			18,570
Construction advances	12,407			6,957
Consumer loans receivable	96,737			97,148
Deferred financing fees and other, net	(1,370		)	(1,095		)
Allowance for loan losses	(375		)	(252		)
Consumer loans receivable, net	$	94,992		$	95,801

The allowance for loan losses is developed at the loan level and allocated to specific individual loans or to impaired loans. A range of probable losses is calculated after giving consideration to, among other things, the loan characteristics, and historical loss experience. The Company then makes a determination of the best estimate within the range of loan losses. The allowance for loan losses reflects the Company’s judgment of the probable loss exposure on its loans held for investment portfolio.

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 includes interest 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 includes interest that 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.



	December 30, 2017			April 1, 2017
	(in thousands)
Consumer loans receivable held for investment – contractual amount	$	125,307		$	142,391
Purchase discount
Accretable	(48,268		)	(56,686		)
Non-accretable	(22,922		)	(25,032		)
Less consumer loans receivable reclassified as other assets	(104		)	(160		)
Total acquired consumer loans receivable held for investment, net	$	54,013		$	60,513

The Company continues to estimate cash flows expected to be collected over the life of the acquired loans. 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:



	December 30, 2017		April 1, 2017
Prepayment rate	14.0	%	13.8	%
Default rate	1.2	%	1.1	%

Assuming there was a 1% unfavorable variation from the expected level, for each key assumption, the expected cash flows for the life of the portfolio, as of December 30, 2017, would decrease by approximately $1.4 million and $4.0 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						Nine Months Ended
	December 30, 2017			December 31, 2016			December 30, 2017			December 31, 2016
Balance at the beginning of the period	$	51,180		$	62,209		$	56,686		$	69,053
Accretion	(2,068		)	(2,399		)	(6,441		)	(7,363		)
Reclassifications to non-accretable discount	(844		)	(872		)	(1,977		)	(2,752		)
Balance at the end of the period	$	48,268		$	58,938		$	48,268		$	58,938

The consumer loans held for investment have the following characteristics:



	December 30, 2017		April 1, 2017
Weighted average contractual interest rate	8.67	%	8.87	%
Weighted average effective interest rate	9.51	%	9.35	%
Weighted average months to maturity	166		165

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 personal property loans), 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. Unsecuritized consumer loans held for investment include chattel personal property loans originated under the Company's chattel lending programs. 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 for each class by portfolio segment and credit quality indicator as of the time of origination (in thousands):



	December 30, 2017
	Consumer Loans Held for Investment
	Securitized 2005		Securitized 2007		Unsecuritized		Construction Advances		Consumer Loans Held For Sale		Total
Asset Class
Credit Quality Indicator (FICO® score)
Chattel loans
0-619	$	502	$	366	$	352	$	—	$	—	$	1,220
620-719	10,548		7,312		7,652		—		383		25,895
720+	11,104		6,792		9,286		—		1,743		28,925
Other	50		—		368		—		—		418
Subtotal	22,204		14,470		17,658		—		2,126		56,458
Conforming mortgages
0-619	—		—		158		41		—		199
620-719	—		—		1,891		6,396		7,192		15,479
720+	—		—		327		5,970		2,927		9,224
Other	—		—		—		—		116		116
Subtotal	—		—		2,376		12,407		10,235		25,018
Non-conforming mortgages
0-619	83		413		1,066		—		—		1,562
620-719	1,180		4,608		3,178		—		—		8,966
720+	1,475		2,562		399		—		—		4,436
Other	—		—		286		—		—		286
Subtotal	2,738		7,583		4,929		—		—		15,250
Other loans
Subtotal	—		—		11		—		—		11
	$	24,942	$	22,053	$	24,974	$	12,407	$	12,361	$	96,737



	April 1, 2017
	Consumer Loans Held for Investment
	Securitized 2005		Securitized 2007		Unsecuritized		Construction Advances		Consumer Loans Held For Sale		Total
Asset Class
Credit Quality Indicator (FICO® score)
Chattel loans
0-619	$	705	$	411	$	393	$	—	$	—	$	1,509
620-719	11,681		8,072		5,406		—		697		25,856
720+	12,748		7,800		5,081		—		3,097		28,726
Other	51		—		433		—		—		484
Subtotal	25,185		16,283		11,313		—		3,794		56,575
Conforming mortgages
0-619	—		—		161		261		99		521
620-719	—		—		1,792		4,231		10,553		16,576
720+	—		—		247		2,465		4,124		6,836
Subtotal	—		—		2,200		6,957		14,776		23,933
Non-conforming mortgages
0-619	86		435		1,327		—		—		1,848
620-719	1,242		4,947		3,372		—		—		9,561
720+	1,527		2,909		484		—		—		4,920
Other	—		—		299		—		—		299
Subtotal	2,855		8,291		5,482		—		—		16,628
Other loans
Subtotal	—		—		12		—		—		12
	$	28,040	$	24,574	$	19,007	$	6,957	$	18,570	$	97,148

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. Forty-three percent of the outstanding principal balance of consumer loans receivable portfolio is concentrated in Texas and 10% is concentrated in Florida. Other than Texas and Florida, no other state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of December 30, 2017.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at 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 the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled approximately $1.5 million and $1.2 million as of December 30, 2017 and April 1, 2017, respectively, and are included in prepaid and other assets in the consolidated balance sheet. Foreclosure or similar proceedings in progress totaled approximately $1.2 million and $694,000 as of December 30, 2017 and April 1, 2017, respectively.