Transfers of Financial Assets

We completed various transactions with an unrelated entity involving our notes receivable under which we received cash proceeds in exchange for relinquishing our right, title, and interest in certain notes receivable. We have no further obligations or rights with respect to the control, management, administration, servicing, or collection of the installment notes receivable. However, we are subject to certain recourse provisions requiring us to purchase the underlying homes collateralizing such notes, in the event of a note default and subsequent repossession of the home by the unrelated entity. The recourse provisions are considered to be a form of continuing involvement, and therefore these transferred loans did not meet the requirements for sale accounting. We continue to recognize these transferred loans on our balance sheet and refer to them as collateralized receivables. The proceeds from the transfer have been recognized as a secured borrowing.

In the event of a note default and subsequent repossession of a manufactured home by the unrelated entity, the terms of the agreement require us to repurchase the manufactured home. Default is defined as the failure to repay the installment note receivable according to contractual terms. The repurchase price is calculated as a percentage of the outstanding principal balance of the collateralized receivable, plus any outstanding late fees, accrued interest, legal fees, and escrow advances associated with the installment note receivable. The percentage used to determine the repurchase price of the outstanding principal balance on the installment note receivable is based on the number of payments made on the note. In general, the repurchase price is determined as follows:



Number of Payments	Repurchase Percentage
Fewer than or equal to 15	100	%
Greater than 15 but fewer than 64	90	%
Equal to or greater than 64 but fewer than 120	65	%
120 or more	50	%

The transferred assets have been classified as “Collateralized receivables, net” and the cash proceeds received from these transactions have been classified as “Secured borrowings on collateralized receivables” within the Consolidated Balance Sheets. The balance of the collateralized receivables was $138.7 million (net of allowance of $0.8 million) and $143.9 million (net of allowance of $0.6 million) as of June 30, 2017 and December 31, 2016, respectively. The receivables have a weighted average interest rate and maturity of 10.0 percent and 15.6 years as of June 30, 2017, and 10.0 percent and 15.7 years as of December 31, 2016.

The outstanding balance on the secured borrowing was $139.5 million and $144.5 million as of June 30, 2017 and December 31, 2016, respectively.

The collateralized receivables earn interest income, and the secured borrowings accrue interest expense at the same interest rates. The amount of interest income and expense recognized was $3.3 million and $3.4 million for the three months ended June 30, 2017 and 2016, respectively, and $6.6 million and $6.8 million for the six months ended June 30, 2017 and 2016, respectively.

The balances of the collateralized receivables and secured borrowings fluctuate. The balances increase as additional notes receivable are transferred and exchanged for cash proceeds. The balances are reduced as the related collateralized receivables are collected from the customers, or as the underlying collateral is repurchased. The change in the aggregate gross principal balance of the collateralized receivables is as follows (in thousands):



	Six Months Ended
	June 30, 2017
Beginning balance	$	144,477
Financed sales of manufactured homes	6,849
Principal payments and payoffs from our customers	(5,799		)
Principal reduction from repurchased homes	(6,031		)
Total activity	(4,981		)
Ending balance	$	139,496

The following table sets forth the allowance for the collateralized receivables as of June 30, 2017 (in thousands):



	Six Months Ended
	June 30, 2017
Beginning balance	$	(607	)
Lower of cost or market write-downs	515
Increase to reserve balance	(708		)
Total activity	(193		)
Ending balance	$	(800	)