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CONSUMER LOANS

9 Months Ended

Sep. 30, 2021

2. CONSUMER LOANS

Consumer loans result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations. Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment. Interest income is recognized monthly per the terms of the financing agreements. The average contractual interest rate per loan was approximately 13.6% as of September 30, 2021 and 13.8% as of December 31, 2020. Consumer loans receivable have maturities that range from 3 to 30 years.

Loan applications go through an underwriting process that considers credit history to evaluate credit risk of the consumer. Interest rates on approved loans are determined based on consumer credit score, payment ability and down payment amount.

The Company uses payment history to monitor the credit quality of the consumer loans on an ongoing basis.

The Company may also receive escrow payments for property taxes and insurance included in its consumer loan collections. The liabilities associated with these escrow collections totaled $9,350 and $7,729 as of September 30, 2021 and December 31, 2020, respectively, and are included in escrow liability in the balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

The allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. An allowance for loan losses is determined after giving consideration to, among other things, the loan characteristics, including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience.

The allowance for loan losses is comprised of two components: the general reserve and specific reserves. The Company’s calculation of the general reserve considers the historical loss rate for the last three years, adjusted for the estimated loss discovery period and any qualitative factors both internal and external to the Company. Specific reserves are determined based on probable losses on specific classified impaired loans.

The Company’s policy is to place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is when either principal or interest is past due and remains unpaid for more than 90 days or other indications of distress. Management implemented this policy based on an analysis of historical data, current performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then to principal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current.

Impaired loans are those loans where it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans, or portions thereof, are charged off when deemed uncollectible. A loan is generally deemed impaired if it is more than 90 days past due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession. A specific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs. The Company uses various factors to determine the value of the underlying collateral for impaired loans. These factors are: (1) the length of time the unit was unsold after construction; (2) the amount of time the house was occupied; (3) the cooperation level of the borrowers, i.e., loans requiring legal action or extensive field collection efforts; (4) units located on private property as opposed to a manufactured home park; (5) the length of time the borrower has lived in the house without making payments; (6) location, size, and market conditions; and (7) the experience and expertise of the particular dealer assisting in collection efforts.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell. At repossession, the fair value of the collateral is computed based on the historical recovery rates of previously charged off loans; the loan is charged off and the loss is charged to the allowance for loan losses. At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled $698 and $1,395 as of September 30, 2021 and December 31, 2020, respectively, and are included in other assets in the balance sheets.

Consumer loans receivable, net of allowance for loan losses and deferred financing fees, consists of the following:


	As of September 30,		As of December 31,
	2021		2020
Consumer loans receivable	$	125,089	$	115,639
Loan discount and deferred financing fees		(2,650)		(2,814)
Allowance for loan losses		(802)		(905)
Consumer loans receivable, net	$	121,637	$	111,920

The following table presents a detail of the activity in the allowance for loan losses:


	Three months ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Allowance for loan losses, beginning of period	$	814	$	916	$	905	$	913
Provision for loan losses		27		306		586		586
Charge offs		(39)		(172)		(689)		(449)
Allowance for loan losses	$	802	$	1,050	$	802	$	1,050

The reserve for loan losses consists of the following:


	As of September 30,		As of December 31,
	2021		2020
Total consumer loans	$	125,089	$	115,639
Allowance for loan losses	$	802	$	905
Impaired loans individually evaluated for impairment	$	1,328	$	1,603
Specific reserve against impaired loans	$	437	$	558
Other loans collectively evaluated for allowance	$	123,761	$	114,036
General allowance for loan losses	$	365	$	347

As of September 30, 2021 and December 31, 2020, the total principal outstanding for consumer loans on nonaccrual status was $1,328 and $1,603, respectively. A detailed aging of consumer loans receivable that are past due as of September 30, 2021 and December 31, 2020 were as follows:


	As of September 30,			As of December 31,
	2021		%	2020		%
Total consumer loans receivable	$	125,089	100.0	$	115,639	100.0
Past due consumer loans:
31 - 60 days past due	$	316	0.3	$	954	0.8
61 - 90 days past due		440	0.4		221	0.2
91 - 120 days past due		111	0.1		141	0.1
Greater than 120 days past due		885	0.7		1,261	1.1
Total past due	$	1,752	1.4	$	2,577	2.2