Fair Value Disclosures

Financial Instruments

A summary of assets and (liabilities) at October 31, 2015 and 2014, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (amounts in thousands):



		Fair value
Financial Instrument	Fair value hierarchy	October 31, 2015			October 31, 2014
Marketable Securities	Level 2	$	10,001		$	12,026
Residential Mortgage Loans Held for Sale	Level 2	$	123,175		$	101,944
Forward Loan Commitments – Residential Mortgage Loans Held for Sale	Level 2	$	186		$	(341	)
Interest Rate Lock Commitments (“IRLCs”)	Level 2	$	(297	)	$	(108	)
Forward Loan Commitments – IRLCs	Level 2	$	297		$	108

At October 31, 2015 and 2014, the carrying value of cash and cash equivalents and restricted cash approximated fair value.

Marketable Securities

The fair value of our marketable securities approximates the amortized costs basis as of October 31, 2015 and 2014. The estimated fair values of marketable securities are based on quoted prices provided by brokers. The remaining contractual maturities of marketable securities as of October 31, 2015 was one month.

Mortgage Loans Held for Sale

At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and the application of such pricing to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the fair value of our forward loan commitments as a gain or loss. These gains and losses are included in “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is included in “Other income – net.”

The table below provides, for the periods indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale as of the date indicated (amounts in thousands):



At October 31,	Aggregate unpaid principal balance		Fair value		Excess
2015	$	121,904	$	123,175	$	1,271
2014	$	100,463	$	101,944	$	1,481

IRLCs represent individual borrower agreements that commit us to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. We utilize best-efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby we agree to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging,” which requires derivative financial instruments to be recorded at fair value. We estimate the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. The fair values of IRLCs and forward loan commitments are included in either “Receivables, prepaid expenses and other assets” or “Accrued expenses” in our Consolidated Balance Sheets, as appropriate. To manage the risk of non-performance of investors regarding the Forward Commitments, we assess the creditworthiness of the investors on a periodic basis.

Inventory

We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. See Note 1, “Significant Accounting Policies - Inventory,” for additional information regarding our methodology on determining fair value. As further discussed in Note 1, determining the fair value of a community’s inventory involves a number of variables, many of which are interrelated. If we used a different input for any of the various unobservable inputs used in our impairment analysis, the results of the analysis may have been different, absent any other changes. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired communities:



	Selling price per unit ($ in thousands)	Sales pace per year (in units)	Discount rate
Three months ended October 31, 2015	301 - 764	3 - 24	16.3% - 22.0%
Three months ended July 31, 2015	788 - 1,298	4 - 8	15.5% -16.2%
Three months ended April 30, 2015	527 - 600	13 - 25	17.0%
Three months ended January 31, 2015	289 - 680	1 - 7	13.5% - 16.0%
Three months ended October 31, 2014	337 - 902	7 - 23	12.5% - 16.5%
Three months ended July 31, 2014	698 - 1,233	10 - 22	15.9%
Three months ended April 30, 2014	634 - 760	4 - 7	12.0% - 15.3%
Three months ended January 31, 2014	388 - 405	21 - 23	16.6%

The table below provides, for the periods indicated, the fair value of operating communities whose carrying value was adjusted and the amount of impairment charges recognized ($ amounts in thousands):



		Impaired operating communities
Three months ended:	Number of communities tested	Number of communities	Fair value of communities, net of impairment charges		Impairment charges recognized
Fiscal 2015:
January 31	58	4	$	24,968	$	900
April 30	52	1	$	16,235	11,100
July 31	40	3	$	13,527	6,000
October 31	44	3	$	8,726	4,300
					$	22,300
Fiscal 2014:
January 31	67	1	$	7,131	$	1,300
April 30	65	2	$	6,211	1,600
July 31	63	1	$	14,122	4,800
October 31	55	7	$	38,473	9,855
					$	17,555
Fiscal 2013:
January 31	60	2	$	5,377	$	700
April 30	79	1	$	749	340
July 31	76	1	$	191	100
October 31	63	2	$	6,798	2,200
					$	3,340

Investments in REO

Gibraltar’s REO was recorded at estimated fair value at the time it was acquired through foreclosure or deed in lieu actions using Level 3 inputs. The valuation techniques used to estimate fair value are third-party appraisals, broker opinions of value, or internal valuation methodologies (which may include discounted cash flows, capitalization rate analysis, or comparable transactional analysis). Unobservable inputs used in estimating the fair value of REO assets are based upon the best information available under the circumstances and take into consideration the financial condition and operating results of the asset, local market conditions, the availability of capital, interest and inflation rates, and other factors deemed appropriate by management.

Acquisition of Shapell

The purchase price allocation performed in connection with the Acquisition was primarily based on Level 3 inputs. The valuation techniques used to value the assets and liabilities acquired are described in Note 2, “Acquisition”.

Debt

The table below provides, as of the dates indicated, the book value and estimated fair value of our debt at October 31, 2015 and 2014 (amounts in thousands):



		2015				2014
	Fair value hierarchy	Book value		Estimated fair value		Book value		Estimated fair value
Loans payable (a)	Level 2	$	1,001,702	$	1,001,366	$	654,261	$	652,944
Senior notes (b)	Level 1	2,707,376		2,877,039		2,657,376		2,821,559
Mortgage company loan facility (c)	Level 2	100,000		100,000		90,281		90,281
		$	3,809,078	$	3,978,405	$	3,401,918	$	3,564,784


(a)	The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.


(b)	The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.


(c)	We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.