6 .	Fair Value Measurements

ASC Topic 820,

Fair Value Measurements

(“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:

		Fair Value
Financial Instrument	Hierarchy	March 31, 2016		December 31, 2015
		(Dollars in thousands)
Marketable equity securities (available-for-sale)	Level 1	$	89,422	$	103,694
Mortgage loans held-for-sale, net	Level 2	$	82,193	$	115,670
Metropolitan district bond securities (related party) (available-for-sale)	Level 3	$	27,277	$	25,911

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of March 31, 2016 and December 31, 2015.

Cash and cash equivalents, restricted cash, trade and other receivables, prepaid and other assets, accounts payable, accrued liab

ilities and borrowings on our revolving credit facility

Fair value approximates carrying value.

Marketable Securities

. As of March 31, 2016 and December 31, 2015, we only held marketable equity securities. However, during 2015, we also held marketable debt securities. Our equity securities consist of holdings in corporate equities and holdings in mutual fund securities, which are primarily invested in debt securities. Our debt securities consisted primarily of fixed and floating rate interest earning debt securities, which may have included, among others, United States government and government agency debt and corporate debt. As of March 31, 2016 and December 31, 2015, all of our equity securities were treated as available-for-sale investments and as such, are recorded at fair value with all changes in fair value initially recorded through AOCI, subject to an assessment to determine if an unrealized loss, if applicable, is other-than-temporary.

Each quarter we assess all of our securities in an unrealized loss position for a potential other-than-temporary impairment (“OTTI”)

. If the unrealized loss is determined to be other-than-temporary, an OTTI is recorded in the consolidated statements of operations and comprehensive income.

During the three months ended March 31, 2016, we recorded a pretax OTTI of $0.4 million for certain of our equity securities that were in an unrealized loss position as of the end of the quarter. The OTTI is included in other-than-temporary impairment of marketable securities in the homebuilding section of our consolidated statements of operations

and comprehensive income

. No such impairments were recorded during the three months ended March 31, 2015.

The following tables set forth the cost and fair value of our marketable equity securities:

	March 31, 2016
	Original Cost Basis		OTTI			Net Cost Basis		Fair Value
	(Dollars in thousands)
Homebuilding equity securities	$	70,666	$	(2,324	)	$	68,342	$	77,154
Financial services equity securities		12,988		-			12,988		12,268
Total marketable equity securities	$	83,654	$	(2,324	)	$	81,330	$	89,422

	December 31, 2015
	Original Cost Basis		OTTI			Net Cost Basis		Fair Value
	(Dollars in thousands)
Homebuilding equity securities	$	89,738	$	(3,969	)	$	85,769	$	92,387
Financial services equity securities		12,026		-			12,026		11,307
Total marketable equity securities	$	101,764	$	(3,969	)	$	97,795	$	103,694

As of March 31, 2016 and December 31, 2015, our marketable equity securities were in a net unrealized gain position totaling $8.1 million and $5.9 million, respectively.

Our individual marketable equity securities that were in unrealized loss positions, excluding those that were impaired as part of any OTTI, aggregated to an unrealized loss of $0.9 million as of both March 31, 2016 and December 31, 2015, respectively.

The table below sets forth the aggregated unrealized losses for individual equity securities that were in unrealized loss positions but did not have OTTIs recognized.

We do not believe the decline in the value of these marketable securities as of March 31, 2016 is other-than-temporary.

	March 31, 2016							December 31, 2015
	Number of Securities in an Unrealized Loss Position		Aggregate Unrealized Loss Position			Aggregate Fair Value of Securities in an Unrealized Loss Position		Number of Securities in an Unrealized Loss Position		Aggregate Unrealized Loss Position			Aggregate Fair Value of Securities in an Unrealized Loss Position
	(Dollars in thousands)
Marketable equity securities		5	$	(925	)	$	7,102		4	$	(882	)	$	6,116

The table below sets forth gross realized gains and losses from the sale of available-for-sale marketable securities, which were included in other expense in the homebuilding section, or interest and other income in the financial services section, of our consolidated statements of operations and comprehensive income. Some of the losses realized in the current year may have been recognized in prior years through an OTTI.

	Three Months Ended
	March 31,
	2016			2015
	(Dollars in thousands)
Gross realized gains on sales of available-for-sale securities
Equity securities	$	91		$	237
Debt securities		-			166
Total	$	91		$	403

Gross realized losses on sales of available-for-sale securities
Equity securities	$	(1,006	)	$	(325	)
Debt securities		-			(89	)
Total	$	(1,006	)	$	(414	)

Net realized loss on sales of available-for-sale securities	$	(915	)	$	(11	)

Mortgage Loans Held-for-

Sale, Net.

As of March 31, 2016, the primary components of our mortgage loans held-for-sale that are measured at fair value on a recurring basis are: (1) mortgage loans held-for-sale under commitments to sell; and (2) mortgage loans held-for-sale not under commitments to sell. At March 31, 2016 and December 31, 2015, we had $62.2 million and $92.6 million, respectively, of mortgage loans held-for-sale under commitments to sell for which fair value was based upon Level 2 inputs, which were the quoted market prices for those mortgage loans. At March 31, 2016 and December 31, 2015, we had $20.0 million and $23.1 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Gains on sales of mortgage loans, net, were $5.6 million and $4.4 million for the three months ended March 31, 2016 and 2015, respectively, and are included as a component of revenues in the financial services section of the consolidated statements of operations and comprehensive income.

Metropolitan District Bond Securities (Related Party).

The metropolitan district bond securities (the “Metro Bonds”) are included in the homebuilding section of our consolidated balance sheets. We acquired the Metro Bonds from a quasi-municipal corporation in the state of Colorado (the “Metro District”), which was formed to help fund and maintain the infrastructure associated with a master-planned community being developed by our Company. Cash flows received by the Company from these securities reflect principal and interest payments from the Metro District, which are generally received in the fourth quarter, and are supported by an annual levy on the taxable assessed value of real estate and personal property within the Metro District’s boundaries. The stated year of maturity for the Metro Bonds is 2037. However, if the unpaid principal and all accrued interest are not paid off by the year 2037, the Company will continue to receive principal and interest payments in perpetuity until the unpaid principal and accrued interest is paid in full.

In accordance with ASC Topic 310-30,

Loans and Debt Securities Acquired with Deteriorated Credit Quality

(“ASC 310-30”), we adjust the bond principal balance using an interest accretion model that utilizes future cash flows expected to be collected. Furthermore, as this investment is accounted for as an available-for-sale asset, we update its fair value on a quarterly basis, with the adjustment being recorded through AOCI. The fair value is based upon a discounted future cash flow model, which uses Level 3 inputs. The primary unobservable inputs used in our discounted cash flow model are (1) the forecasted number of homes to be closed, as they drive increases to the tax paying base for the Metro District, (2) the forecasted assessed value of those closed homes and (3) the discount rate. Cash receipts, which are typically only received in the fourth quarter, reduce the carrying value of the Metro Bonds. The increases in the value of the Metro Bonds during the past two years are based on a larger percentage of future cash flows coming from homes that have closed, which utilize a lower discount rate as those cash flows have a reduced amount of risk. The table below provides quantitative data, as of March 31, 2016, regarding each unobservable input and the sensitivity of fair value to potential changes in those unobservable inputs.

Quantitative Data

Sensitivity Analysis

Unobservable Input

Range

Weighted

Average

Movement in
Fair Value from
Increase in Input

Movement in
Fair Value from
Decrease in Input

Number of homes closed per year

113

Increase

Decrease

Average sales price

$418,000

$1,200,000

$486,000

Increase

Decrease

Discount rates

12%

7.4%

Decrease

Increase

The table set forth below summarizes the activity for our Metro Bonds:

	Three Months Ended
	March 31,
	2016		2015
	(Dollars in thousands)
Balance at beginning of period	$	25,911	$	18,203
Increase in fair value (recorded in other comprehensive income)		950		1,418
Change due to accretion of principal		416		357
Cash receipts		-		-
Balance at end of period	$	27,277	$	19,978

Mortgage Repurchase Facility.

The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates or at fixed rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

Senior Notes

. The estimated values of the senior notes in the following table are based on Level 2 inputs, which primarily reflect estimated prices for our senior notes and were obtained from multiple pricing sources.

	March 31, 2016				December 31, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
5⅝% Senior Notes due February 2020, net	$	246,247	$	252,592	$	246,032	$	257,813
5½% Senior Notes due January 2024, net		248,254		239,833		248,209		252,188
6% Senior Notes due January 2043, net		346,297		268,753		346,283		276,938
Total	$	840,798	$	761,178	$	840,524	$	786,939