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

defined as observable inputs such as quoted prices in active markets; Level

defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level

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	December 31, 2016		December 31, 2015
		(Dollars in thousands)
Marketable equity securities (available-for-sale)	Level 1	$	96,206	$	103,694
Mortgage loans held-for-sale, net	Level 2	$	138,774	$	115,670
Metropolitan district bond securities (related party) (available-for-sale)	Level 3	$	30,162	$	25,911

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of

December

31,

2016

and

2015.

Cash and cash equivalents, restricted cash, trade and other receivables, prepaid and other assets, accounts payable, accrued liabilities and borrowings on our revolving credit facility.

Fair value approximates carrying value.

Marketable Securities

. As of

December

31,

2016

and

2015,

we only held

marketable equity securities. However, during

2015,

we also held marketable debt securities. Our debt securities consisted primarily of fixed and floating rate interest earning debt securities, which included, among others, United States government and government agency debt and corporate debt. As of

December

31,

2016

our equity securities consist of holdings in corporate equities, preferred stock and exchange traded funds. As of

December

31,

2015,

we also invested in holdings in mutual fund securities (which were primarily invested in debt securities). As of

December

31,

2016

and

2015,

all of our equity securities were treated as available-for-sale investments and as such, were 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 OTTI. For the years ended

December

31,

2016,

2015

and

2014,

we recorded pretax OTTIs of

$1.4

million,

$4.0

million and

$4.3

million, respectively, for certain equity investments that were in an unrealized loss position as of the end of each respective period. The OTTIs are included in other-than-temporary impairment of marketable securities in the homebuilding or financial services sections of our

consolidated statements of operations and comprehensive income

The following tables set forth the amortized cost and estimated fair value of our available-for-sale marketable securities.

	December 31, 2016
	Amortized Cost		OTTI			Net Amortized Cost		Fair Value
	(Dollars in thousands)
Homebuilding equity securities	$	49,295	$	(1,070	)	$	48,225	$	59,770
Financial services equity securities		35,885		(373	)		35,512		36,436
Total marketable equity securities	$	85,180	$	(1,443	)	$	83,737	$	96,206

	December 31, 2015
	Amortized Cost		OTTI			Net Amortized Cost		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

December

31,

2016

and

2015,

our marketable equity securities were in net unrealized gain positions totaling

$12.5

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

$0.5

million and

$0.9

million as of

December

31,

2016

and

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

December

31,

2016

is other-than-temporary.

	December 31, 2016							December 31, 2015
	Number of Securities in Loss Position		Average Loss Position			Aggregate Fair Value of Securities in a Loss Position		Number of Securities in Loss Position		Average Loss Position			Aggregate Fair Value of Securities in a Loss Position
	(Dollars in thousands)
Marketable equity securities		5	$	(457	)	$	6,045		4	$	(882	)	$	6,116

The following table sets forth gross realized gains and losses from the sale of available-for-sale marketable securities. We record the net amount of these gains and losses to either other expense or interest and other income, dependent upon whether there is a net realized loss or gain, respectively, in the homebuilding section or financial services section of our consolidated statements of operations and comprehensive income.

	Year Ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Gross realized gains on sales of available-for-sale securities
Equity securities	$	2,669		$	1,854		$	7,719
Debt securities		-			417			2,432
Total	$	2,669		$	2,271		$	10,151

Gross realized losses on sales of available-for-sale securities
Equity securities	$	(1,596	)	$	(2,949	)	$	(6,183	)
Debt securities		-			(233	)		(952	)
Total	$	(1,596	)	$	(3,182	)	$	(7,135	)

Net realized gain (loss) on sales of available-for-sale securities	$	1,073		$	(911	)	$	3,016

Mortgage Loans Held-for-Sale, Net.

ur mortgage loans held-for-sale, which are measured at fair value on a recurring basis include

(1)

mortgage loans held-for-sale that are under commitments to sell and

(2)

mortgage loans held-for-sale that are not under commitments to sell.

December

31,

2016

and

December

31,

2015,

we had

$96.2

million and

$92.6

million,

respectively, of mortgage loans held-for-sale under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level

fair value inputs.

December

31,

2016

and

2015,

we had

$42.6

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

fair value input.

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. Refer to Note

for details on how these bonds were acquired. 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

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

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 scheduled to be 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 primarily 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

December

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

159

107

Increase

Decrease

Average sales price

$445,000

$870,000

548,000

Increase

Decrease

Discount rates

12%

8.2

Decrease

Increase

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

	Year Ended December 31,
	2016			2015
	(Dollars in thousands)
Balance at beginning of period	$	25,911		$	18,203
Increase in fair value (recorded in other comprehensive income)		3,683			6,961
Change due to accretion of principal		1,747			1,427
Cash receipts		(1,179	)		(680	)
Balance at end of period	$	30,162		$	25,911

Mortgage Repurchase Facility.

The debt associated with our Mortgage Repurchase Facility (see Note

for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within

days. The fair value approximates carrying value and is based on Level

inputs.

Senior Notes

. The estimated values of the senior notes in the following table are based on Level

inputs, which primarily reflect estimated prices for our senior notes which were provided by multiple sources.

	December 31, 2016				December 31, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
$250 Million 5⅝% Senior Notes due February 2020, net	$	246,915	$	265,611	$	246,032	$	257,813
$250 Million 5½% Senior Notes due January 2024, net		248,391		258,800		248,209		252,188
$350 Million 6% Senior Notes due January 2043, net		346,340		297,087		346,283		276,938
Total	$	841,646	$	821,498	$	840,524	$	786,939