Fair Value Measurements

9 Months Ended

Dec. 28, 2019

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



	December 28, 2019						March 30, 2019
	Book Value			Estimated Fair Value			Book Value			Estimated Fair Value
Available-for-sale debt securities ⁽¹⁾	$	10,391		$	10,391		$	13,408		$	13,408
Marketable equity securities ⁽¹⁾	13,473			13,473			11,073			11,073
Non-marketable equity investments ⁽²⁾	21,310			21,310			20,276			20,276
Consumer loans receivable ⁽³⁾	89,992			103,141			86,785			101,001
Interest rate lock commitment derivatives ⁽⁴⁾	3			3			11			11
Forward loan sale commitment derivatives ⁽⁴⁾	104			104			(59		)	(59		)
Commercial loans receivable ⁽⁵⁾	44,357			44,313			43,006			43,582
Securitized financings and other ⁽⁶⁾	(15,987		)	(19,448		)	(34,140		)	(38,101		)


(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 is 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 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):



	December 28, 2019
	Total		Level 1		Level 2		Level 3
Residential mortgage-backed securities ⁽¹⁾	$	5,236	$	—	$	5,236	$	—
State and political subdivision debt securities ⁽¹⁾	3,831		—		3,831		—
Corporate debt securities ⁽¹⁾	1,324		—		1,324		—
Marketable equity securities ⁽²⁾	13,473		13,473		—		—
Interest rate lock commitment derivatives ⁽³⁾	3		—		—		3
Forward loan sale commitment derivatives ⁽³⁾	104		—		—		104
Mortgage servicing rights ⁽⁴⁾	1,263		—		—		1,263



	March 30, 2019
	Total			Level 1		Level 2		Level 3
U.S Treasury and government debt securities⁽¹⁾	$	297		$	—	$	297	$	—
Residential mortgage-backed securities ⁽¹⁾	6,509			—		6,509		—
State and political subdivision debt securities ⁽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


(1)	Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income (loss) 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 nine months ended December 28, 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):



	December 28, 2019
	Total			Level 1		Level 2			Level 3
Loans held for investment	$	69,932		$	—	$	—		$	69,932
Loans held for sale	20,583			—		—			20,583
Loans held—construction advances	12,626			—		—			12,626
Commercial loans receivable	44,313			—		—			44,313
Securitized financings and other	(19,448		)	—		(19,448		)	—
Non-marketable equity investments	21,310			—		—			21,310



	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 and other	(38,101		)	—		(38,101		)	—
Non-marketable equity investments	20,276			—		—			20,276

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 was lower than the fair value as of December 28, 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 the expected prepayment of the debt and credit spreads, based on market activity for similar rated bonds from other asset classes with similar durations.

The Company records impairment losses on long-lived assets held for sale when the fair value of such long-lived assets is below their carrying values. The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. No impairment charges were recorded during the nine months ended December 28, 2019.

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 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 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 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.



	December 28, 2019			March 30, 2019
Number of loans serviced with MSRs	4,632			4,557
Weighted average servicing fee (basis points)	31.12			31.59
Capitalized servicing multiple	70.53		%	77.97		%
Capitalized servicing rate (basis points)	21.95			24.63
Serviced portfolio with MSRs (in thousands)	$	575,313		$	556,934
Mortgage servicing rights (in thousands)	$	1,263		$	1,372

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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