20.	Fair Value of Financial Instruments

ASC

820,

“Fair Value Measurements and Disclosures,” provides a framework for measuring fair value, expands disclosures about fair-value measurements and establishes a fair-value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level

Fair value determined based on quoted prices in active markets for identical assets.

Level

Fair value determined using significant other observable inputs.

Level

Fair value determined using significant unobservable inputs.

Our financial instruments measured at fair value on a recurring basis are summarized below:

		Fair Value at		Fair Value at
	Fair Value	January 31,		October 31,
(In thousands)	Hierarchy	2020		2019

Mortgage loans held for sale (1)	Level 2	$89,330		$166,007
Forward contracts	Level 2	(183	)	(64	)
Total		$89,147		$165,943
Interest rate lock commitments	Level 3	$118		$42
Total		$89,265		$165,985

(

) The aggregate unpaid principal balance was

$86.5

million and

$161.1

million at

January 31, 2020

and

October 31, 2019,

respectively.

We elected the fair value option for our loans held for sale in accordance with ASC

825,

“Financial Instruments,” which permits us to measure financial instruments at fair value on a contract-by-contract basis. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Fair value of loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The Financial Services segment had a pipeline of loan applications in process of

$496.6

million at

January 31, 2020.

Loans in process for which interest rates were committed to the borrowers totaled

$47.4

million as of

January 31, 2020.

Substantially all of these commitments were for periods of

days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do

not

necessarily represent future cash requirements.

The Financial Services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At

January 31, 2020,

the segment had open commitments amounting to

$11.5

million to sell MBS with varying settlement dates through

February 20, 2020.

The assets accounted for using the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in the Condensed Consolidated Financial Statements in “Revenues: Financial services.” The fair values that are included in income are shown, by financial instrument and financial statement line item, below:

	Three Months Ended January 31, 2020
	Mortgage	Interest Rate
	Loans Held	Lock	Forward
(In thousands)	For Sale	Commitments	Contracts


Fair value included in net loss all reflected in financial services revenues	$2,862	$118	$(183	)

	Three Months Ended January 31, 2019
	Mortgage	Interest Rate
	Loans Held	Lock	Forward
(In thousands)	For Sale	Commitments	Contracts


Fair value included in net loss all reflected in financial services revenues	$1,996	$225	$(385	)

The Company's assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the

three

months ended

January 31, 2019.

The Company did

not

have any assets measured at fair value on a nonrecurring basis during the

three

months ended

January 31, 2020.

The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:

Nonfinancial Assets

		Three Months Ended
		January 31, 2019
		Pre-
	Fair Value	Impairment
(In thousands)	Hierarchy	Amount	Total Losses		Fair Value

Sold and unsold homes and lots under development	Level 3	$-	$-		$-

Land and land options held for future development or sale	Level 3	$6,302	$(43	)	$6,259

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they

may

be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we

may

be required to recognize additional impairments. We recorded inventory impairments, which are included in the Condensed Consolidated Statements of Operations as “Inventory impairment loss and land option write-offs” and deducted from inventory, of less than

$0.1

million for the

three

months ended

January 31, 2019.

We did

not

record any inventory impairments for the

three

months ended

January 31, 2020.

See Note

for further detail of the communities evaluated for impairment.

The fair value of our cash equivalents, restricted cash and cash equivalents and customer’s deposits approximates their carrying amount, based on Level

inputs.

The fair value of each series of our Notes are listed below. Level

measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. Level

measurements are estimated based on

third

-party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments.

Fair Value as of

January 31, 2020

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
10.0% Senior Secured Notes due July 15, 2022	$-	$180,175	$-	$180,175
10.5% Senior Secured Notes due July 15, 2024	-	49,133	-	49,133
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026	-	-	341,250	341,250
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026	-	-	273,852	273,852
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026	-	-	103,141	103,141
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025	-	-	118,877	118,877
Senior Notes:
13.5% Senior Notes due February 1, 2026	-	-	79,022	79,022
5.0% Senior Notes due February 1, 2040	-	36,949	-	36,949
Senior Unsecured Term Loan Credit Facility due February 1, 2027	-	-	22,049	22,049
Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028	-	-	61,124	61,124
Total fair value	$-	$266,257	$999,315	$1,265,572

Fair Value as of

October 31, 2019

(In thousands)	Level 1	Level 2	Level 3	Total
Senior Secured Notes:
10.0% Senior Secured Notes due July 15, 2022	$-	$189,430	$-	$189,430
10.5% Senior Secured Notes due July 15, 2024	-	166,999	-	166,999
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026	-	-	350,000	350,000
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026	-	-	282,322	282,322
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026	-	-	103,141	103,141
Senior Notes:
13.5% Senior Notes due February 1, 2026	-	-	80,254	80,254
5.0% Senior Notes due February 1, 2040	-	-	31,993	31,993
Senior Unsecured Term Loan Credit Facility due February 1, 2027	-	-	106,499	106,499
Total fair value	$-	$356,429	$954,209	$1,310,638

The Senior Secured Revolving Credit Facility is

not

included in the above tables because there were

borrowings outstanding thereunder as of

January 31, 2020

and

October 31, 2019