Fair Value Measurements

3 Months Ended

Jun. 27, 2020

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


	June 27, 2020						March 28, 2020
	Book Value		Estimated Fair Value		Book Value		Estimated Fair Value
Available-for-sale debt securities	$	13,975	$	13,975	$	14,774	$	14,774
Marketable equity securities	11,611		11,611		9,829		9,829
Non-marketable equity investments	21,294		21,294		21,536		21,536
Consumer loans receivable	88,959		102,578		82,304		97,395
Interest rate lock commitment derivatives	40		40		164		164
Forward loan sale commitment derivatives	5		5		(1,011)		(1,011)
Commercial loans receivable	44,009		47,503		46,565		46,819
Securitized financings and other	(14,512)		(14,099)		(14,953)		(15,592)

See Note 19, Fair Value Measurements and the Fair Value of Financial Instruments caption in Note 1, Summary of Significant Accounting Policies in our 2020 Form 10-K for more information on the input levels and methodologies we use in determining fair value.

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


	June 27, 2020
	Total		Level 1		Level 2		Level 3

Residential mortgage-backed securities ⁽¹⁾	$	4,671	$	—	$	4,671	$	—
State and political subdivision debt securities ⁽¹⁾	4,581		—		4,581		—
Corporate debt securities ⁽¹⁾	4,723		—		4,723		—
Marketable equity securities ⁽²⁾	11,611		11,611		—		—
Interest rate lock commitment derivatives ⁽³⁾	40		—		—		40
Forward loan sale commitment derivatives ⁽³⁾	5		—		—		5
Mortgage servicing rights ⁽⁴⁾	1,195		—		—		1,195


	March 28, 2020
	Total		Level 1		Level 2		Level 3
Residential mortgage-backed securities ⁽¹⁾	$	5,443	$	—	$	5,443	$	—
State and political subdivision debt securities ⁽¹⁾	4,370		—		4,370		—
Corporate debt securities ⁽¹⁾	4,961		—		4,961		—
Marketable equity securities ⁽²⁾	9,829		9,829		—		—
Interest rate lock commitment derivatives ⁽³⁾	164		—		—		164
Forward loan sale commitment derivatives ⁽³⁾	(1,011)		—		—		(1,011)
Mortgage servicing rights ⁽⁴⁾	1,225		—		—		1,225

(1)Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income 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 three months ended June 27, 2020. 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):


	June 27, 2020
	Total		Level 1		Level 2		Level 3
Loans held for investment	$	63,647	$	—	$	—	$	63,647
Loans held for sale	26,691		—		—		26,691
Loans held—construction advances	12,240		—		—		12,240
Commercial loans receivable	47,503		—		—		47,503
Securitized financings and other	(14,099)		—		(14,099)		—
Non-marketable equity investments	21,294		—		—		21,294


	March 28, 2020
	Total		Level 1		Level 2		Level 3
Loans held for investment	$	68,503	$	—	$	—	$	68,503
Loans held for sale	15,492		—		—		15,492
Loans held—construction advances	13,400		—		—		13,400
Commercial loans receivable	46,819		—		—		46,819
Securitized financings and other	(15,592)		—		(15,592)		—
Non-marketable equity investments	21,536		—		—		21,536

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 June 27, 2020. 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 three months ended June 27, 2020.

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.


	June 27, 2020			March 28, 2020
Number of loans serviced with MSRs	4,660			4,688
Weighted average servicing fee (basis points)	31.07			31.12
Capitalized servicing multiple	65.92		%	67.19		%
Capitalized servicing rate (basis points)	20.48			20.91
Serviced portfolio with MSRs (in thousands)	$	583,372		$	585,777
Mortgage servicing rights (in thousands)	$	1,195		$	1,225

- 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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