Fair Value Measurements

The book value and estimated fair value of the Company's financial instruments are as follows (in thousands):



	March 30, 2019						March 31, 2018
	Book Value			Estimated Fair Value			Book Value			Estimated Fair Value
Available-for-sale debt securities (1)	$	13,408		$	13,408		$	16,181		$	16,181
Marketable equity securities (1)	11,073			11,073			10,405			10,405
Non-marketable equity investments (2)	20,276			20,276			18,853			18,853
Consumer loans receivable (3)	86,785			101,001			94,951			113,277
Interest rate lock commitment derivatives (4)	11			11			(12		)	(12		)
Forward loan sale commitment derivatives (4)	(59		)	(59		)	26			26
Commercial loans receivable (5)	43,006			43,582			16,601			16,972
Securitized financings and other (6)	(34,140		)	(38,101		)	(59,812		)	(64,509		)


(1)	For Level 1 classified securities, the fair value is based on quoted market prices. The fair value of Level 2 securities is based on other inputs, as further described below.


(2)	The fair value approximates book value based on the non-marketable nature of the investments.

(3)

Includes consumer loans receivable held for investment, held for sale and construction advances. The fair value of the loans held for investment is based on the discounted value of the remaining principal and interest cash flows. The fair value of the loans held for sale are estimated based on recent GSE mortgage-backed bond prices. The fair value of the construction advances approximates book value and the sales price of these loans.


(4)	The fair values are based on changes in GSE mortgage-backed bond prices, and additionally for IRLCs, pull through rates.


(5)	The fair value is estimated using market interest rates of comparable loans.


(6)	The fair value is estimated using recent public transactions of similar asset-backed securities.

In accordance with FASB ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:



Level 1 –	Quoted prices in active markets for identical assets or liabilities.
Level 2 –	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

When the Company uses observable market prices for identical securities that are traded in less active markets, it classifies such securities as Level 2. When observable market prices for identical securities are not available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):



	March 30, 2019
	Total			Level 1		Level 2		Level 3
Securities issued by the U.S. Treasury and Government (1)	$	297		$	—	$	297	$	—
Mortgage-backed securities (1)	6,509			—		6,509		—
Securities issued by states and political subdivisions (1)	4,983			—		4,983		—
Corporate debt securities (1)	1,619			—		1,619		—
Marketable equity securities (2)	11,073			11,073		—		—
Interest rate lock commitment derivatives (3)	11			—		—		11
Forward loan sale commitment derivatives (3)	(59		)	—		—		(59		)
Mortgage servicing rights (4)	1,372			—		—		1,372



	March 31, 2018
	Total			Level 1		Level 2		Level 3
Securities issued by the U.S. Treasury and Government (1)	$	293		$	—	$	293	$	—
Mortgage-backed securities (1)	7,499			—		7,499		—
Securities issued by states and political subdivisions (1)	6,337			—		6,337		—
Corporate debt securities (1)	2,052			—		2,052		—
Marketable equity securities (1)	8,695			8,695		—		—
Interest rate lock commitment derivatives (3)	(12		)	—		—		(12		)
Forward loan sale commitment derivatives (3)	26			—		—		26
Mortgage servicing rights (4)	1,410			—		—		1,410


(1)	Unrealized gains or losses on investments are recorded in AOCI at each measurement date.


(2)	Unrealized gains or losses on investments are recorded in earnings at each measurement date.


(3)	Gains or losses on derivatives are recognized in current period earnings through cost of sales.


(4)	Changes in the fair value of mortgage servicing rights are recognized in the current period earnings through net revenue.

No transfers between Level 1, Level 2 or Level 3 occurred during the year ended March 30, 2019. The Company's policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

Financial instruments for which fair value is disclosed but not required to be recognized in the balance sheet on a recurring basis are summarized below (in thousands):



	March 30, 2019
	Total			Level 1		Level 2			Level 3
Loans held for investment	$	76,319		$	—	$	—		$	76,319
Loans held for sale	11,799			—		—			11,799
Loans held—construction advances	12,883			—		—			12,883
Commercial loans receivable	43,582			—		—			43,582
Securitized financings	(38,101		)	—		(38,101		)	—
Non-marketable equity investments	20,276			—		—			20,276



	March 31, 2018
	Total			Level 1		Level 2		Level 3
Loans held for investment	$	88,960		$	—	$	—	$	88,960
Loans held for sale	13,229			—		—		13,229
Loans held—construction advances	11,008			—		—		11,008
Commercial loans receivable	16,972			—		—		16,972
Securitized financings	(64,509		)	—		—		(64,509		)
Non-marketable equity investments	18,853			—		—		18,853

No recent sales have been executed in an orderly market of manufactured home loan portfolios with comparable product features, credit characteristics, or performance. Therefore, loans held for investment are measured using Level 3 inputs that are calculated using estimated discounted future cash flows from the evaluation of loan credit quality and performance history to determine expected prepayments and defaults on the portfolio, discounted with rates considered to reflect current market conditions. Loans held for sale are measured at the lower of cost or fair value using inputs that consist of quoted market prices for mortgage-backed securities or investor purchase commitments for similar types of loan commitments on hand from investors. These loans are held for relatively short periods, typically no more than 45 days. As a result, changes in loan-specific credit risk are not a significant component of the change in fair value and changes are largely driven by changes in interest rates or investor yield requirements. The cost of loans held for sale is lower than the fair value as of March 30, 2019. As noted above, activity in the manufactured housing asset backed securities market is infrequent, with no reliable market price information. As such, to determine the fair value of securitized financings, management evaluates the credit quality and performance history of the underlying loan assets to estimate expected prepayment of the debt and credit spreads, based on market activity for similar rated bonds from other asset classes with similar durations.

FASB ASC 825, Financial Instruments ("ASC 825"), requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the Company's fair values should not be compared to those of other companies.

Under ASC 825, fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying market value of the Company.

Mortgage Servicing. Mortgage Servicing Rights ("MSRs") are the rights to receive a portion of the interest coupon and fees collected from the mortgagors for performing specified mortgage servicing activities, which consist of collecting loan payments, remitting principal and interest payments to investors, managing escrow accounts, performing loss mitigation activities on behalf of investors and otherwise administering the loan servicing portfolio. MSRs are initially recorded at fair value. Changes in fair value subsequent to the initial capitalization are recorded in net revenue in the Company's results of operations. The Company recognizes MSRs on all loans sold to investors that meet the requirements for sale accounting and for which servicing rights are retained.

The Company applies fair value accounting to MSRs, with all changes in fair value recorded to net revenue in accordance with FASB ASC 860-50, Servicing Assets and Liabilities. The fair value of MSRs is based on the present value of the expected future cash flows related to servicing these loans. The revenue components of the cash flows are servicing fees, interest earned on custodial accounts and other ancillary income. The expense components include operating costs related to servicing the loans (including delinquency and foreclosure costs) and interest expenses on servicer advances that the Company believes are consistent with the assumptions major market participants use in valuing MSRs. The expected cash flows are primarily impacted by prepayment estimates, delinquencies and market discounts. Generally, the value of MSRs is expected to increase when interest rates rise and decrease when interest rates decline, due to the effect those changes in interest rates have on prepayment estimates. Other factors noted above as well as the overall market demand for MSRs may also affect the valuation.



	March 30, 2019			March 31, 2018
Number of loans serviced with MSRs	4,557			4,346
Weighted average servicing fee (basis points)	31.59			32.03
Capitalized servicing multiple	77.97		%	84.76		%
Capitalized servicing rate (basis points)	24.63			27.15
Serviced portfolio with MSRs (in thousands)	$	556,934		$	519,167
Mortgage servicing rights (in thousands)	$	1,372		$	1,410