Ara Hovnanian - President, Chief Executive Officer, Director Larry Sorsby - Chief Financial Officer, Executive Vice President, Director Brad O’Connor - Vice President, Associate Corporate Controller Paul W. Buchanan - Senior Vice President, Corporate Controller Kevin Hake - Senior Vice President-Finance, Treasurer Jeff O’Keefe – IR

Michael Rehaut – JP Morgan Steve Kim - Citigroup Dan Oppenheim - Banc of America Securities Nishu Sood - Deutsche Bank Larry Taylor - Credit Suisse Carl Reichardt - Wachovia Securities Joel Locker - FBN Securities Robert Manowitz - RBS Alex Barron - Agency Trading Group Shankar Menkobi - JP Morgan Rashid Dahod - Argus Research Scott Cavanaugh - Merrill Lynch Keith Wiley - Goldman Sachs

There will be a replay for today's call. This telephone replay will be available after the completion of the call and run for one week. The replay can be accessed by dialing 888-286-8010 and the passcode is 12272730. An archive of the webcast slides will be available for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a lead listen-only mode. Management will make opening remarks about the third quarter results and then open up the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the investor's page of the company's website at www.khov.com. Those listeners who would like to follow along should log onto the website at this time. Before we begin, I would like to remind everyone that the cautionary language about forward-looking statements contained in the press release also applies to any comments made during the conference call and to the information in the slide presentation. I would now like to turn over the conference call to Ara Hovnanian, President and Chief Executive Officer of Hovnanian Enterprises. Ara, please go ahead. Ara Hovnanian : Good morning and thank you for participating in today's call to review the results of our third quarter ended July 31, 2007. Joining me today from the company are Larry Sorsby, Executive Vice President and CFO; Kevin Hake, Senior Vice President and Treasurer; Paul Buchanan, Senior Vice President and Corporate Controller; Brad O'Connor, VP and Associate Corporate Controller; and Jeff O’Keefe, Director of Investor Relations. Overall, the housing market remains very challenging. If you turn to slide 1 you see performance in all key metrics for the third quarter was poor. This is all data which is clear in the release so…

(Operator Instructions) Your first question comes from Michael Rehaut - JP Morgan. Michael Rehaut - JP Morgan: Thanks, good morning. A question on the cash flow guidance. I appreciate all of the comprehensive comments. No doubt, probably all of the questions have been covered in your comments. To the extent that things do continue to deteriorate as the trends have been pointing, what is your flexibility in actually even accelerating or adding to the cash flow generation growth in 4Q and in 2008 where you could even potentially, if you had any flexibility to even generate further by cutting community growth or cutting back on expenditures even further? Or, do you feel that if things get worse, net-net, there would be a downside to those cash flow goals?

I will try to take a crack at that. Basically we absolutely have other avenues to generate more cash flow if the market dictates. Essentially our plans still call for taking down properties that are under option, although we're taking them down at a lower rate than we're delivering them. Should the market slow down further or deteriorate further than what we've just experienced in recent weeks, then we absolutely would either renegotiate far more aggressively and postpone land takes or, if necessary, walk away from the options. Thus as we deliver homes, if you don't replenish the land, it can really start generating significant cash flow. Michael Rehaut - JP Morgan: So based on that with the community count, it rose 3% sequentially, it is now at 449. Can you give us an idea where you expect to be at the end of '07 and '08 and if things worsen, is there an even lower number that you could arrive at?

Well, there is definitely a lower number. As I said, if things really continue to worsen and we're not able to get significant further concessions from our land holders, then we could absolutely drop that number. We don't have a specific number in mind. We monitor it regularly. We look at every community and every market. We look at the pricing. We look at the trends. We're constantly in touch with the land sellers and the option holders, so we just make the changes as the markets dictate and it is not dictated by the overall market as much as that particular local market, and we make those decisions a community at a time. Larry Sorsby: Just one closing comment on that point in terms of the community count growth in this quarter, it is almost exclusively related to an increase in communities in Houston where we continue to perform pretty well.

Your next question comes from Steve Kim - Citigroup. Steve Kim - Citigroup: Could you give us an idea of what percentage of the land you currently have owned or optioned that is fully developed?

We don't break that down. There are either entire parcels or portions of parcels that are not fully developed and one of the new tactics we really employed in the last three or four months is to carefully evaluate those parcels and determine whether it is worth spending the dollars today in land development or if we might be better off mothballing a few and we definitely have mothballed either any future sections or in some cases entire communities where we just didn't feel the dollars were justified in this environment. Steve Kim - Citigroup: Another way of trying to come at what I am asking is, can you give us an idea of either how many lots or roughly what percentage of your land inventory balance you think requires minimal, let's say it that way, minimal additional capital infusion to be able to build homes on it?

We just don't have it handy, Steve, but I can tell you in general unlike a year ago or two years ago, we don't have a lot of major land development activities going on. We own about 32,000 lots at the moment and while we were delivering 20,000 homes in '05, that number represented about a year-and-a-half supply, and that was our typical target, but obviously as absorptions have fallen, it is starting to approach well more than a two-year supply, so we've got a fair amount of developed land in front of us. There is not a lot of big dollars going out at the moment.

Your next question comes from Dan Oppenheim - Banc of America Securities. Dan Oppenheim - Banc of America Securities: Thanks very much. I was wondering if you can talk a bit more about what you're doing in thinking about cash flow? In August you put the numbers there for the decline in net orders into the fourth quarter here. Can you give us a sense in terms of what the cancellation rate was there in August and if those cancellations are coming on homes in the late stages of construction? Does that put at risk the cash flow expectations here for the fourth quarter? Larry Sorsby: Our cancellations in August were roughly the same as the 35% in July. In fact, I think it actually was down 1% to 34%. We did not experience a significant change, much less an increase, in cancellations in August.

But we have tried to factor in, Dan, that we are getting what stage we get them and more than that, what we've done in the backlog is rather than waiting to hear from the customer, our mortgage company has been carefully going through all of our backlog, trying to determine which mortgages were at risk based on the programs and liquidity that's out there, so we have tried to factor that in to our cash flow projections, and at this point we still remain very comfortable with our cash flow projections for this quarter. Keep in mind we already have a third of it over, so we feel like we're making good progress for that. Dan Oppenheim - Banc of America Securities: After what we saw in August in terms of the order trends and potential weakening of the economy here based on some stats out this morning what you're doing, how much more aggressive you're getting on pricing just to work through more of the inventory and generate more sales here?

Well, actually what we have planned as we saw the market soften a bit in August is a nationwide sale-a-thon, if you will. It happens to be coming next weekend, and it is about a 72-hour sale where we're doing some particularly strong concessions that we've built into our budgets but that we hope will really spur some activity, particularly with any homes that are ready for deliveries. So we're trying to be very, very sensitive in all locations on pricing.

Your next question comes from Nishu Sood - Deutsche Bank. Nishu Sood - Deutsche Bank: Thanks. I just wanted to follow-up on the deal of the century promotion you were talking about. How significant are the discounts that you're planning on offering in that? Larry Sorsby: Come out to our community and we'll make you a deal.

Well, if you're a customer, I say they're huge and you can't afford to not be running off the call and go and buy one of our homes. We are often doing some good strong concessions on speculative homes and I think what we're trying to do is just get that word out and be more upfront and aggressive about it. Again, we've built in this anticipated pricing into our projections and financials already. Nishu Sood - Deutsche Bank: Obviously you did a terrific job of addressing the issue of cash flows in your commentary. I think one of the important points you have made in addressing investor concerns about that is that people should relax you're nowhere near taking the sorts of drastic actions that you could take to really shore up your cash flow position. Looking at this deal of the century promotion, should we look at that as just an ongoing normal response to what's going on obviously in the market?

Yes. That's the case. We've seen frankly some of our peers have some good success with that kind of national sales program. We have tended to be very decentralized in marketing, and we remain so, but there was a lot of enthusiasm throughout our business unit leaders to coordinate an all-out national effort. Again, we've seen several of our peers have great success, so that's what really drove it. Nishu Sood - Deutsche Bank: Another kind of drastic type action you've talked about or point you've made is that you could potentially halt lot takedowns altogether and you're continuing to take down lots. I just wanted to get a sense of the magnitude of that. If we look over the last quarter or two let's say, how many millions of dollars would you have generated if you had just halted all lot takedowns, for example? Larry Sorsby: I think the best way to think about that is if we didn't replenish a single lot, the finished lot cost under one of our houses on average is call it 24%, 25% across the country, maybe a little bit higher. You could say that for every dollar of homebuilding revenue we generated $0.25 or so of that $1 would fall to free cash flow, give or take. That's probably the way to think about it. Nishu Sood - Deutsche Bank: I am not quite following you. I am trying to just get a sense of the discretionary component of your lot takedowns. Larry Sorsby: If we stepped on the brake and didn't take down a single other lot, how much free cash would we generate? If we weren't replenishing the land underneath the homes that we delivered, about 25% of every homebuilding dollar in revenue falls to the cash flow. Nishu Sood - Deutsche Bank: But that doesn't take into account the ongoing development costs of your projects that are already under development. Larry Sorsby: Well, pretend it is all finished. It just keeps rolling. It assumes a replacement.

Another way of looking at it is I will try to work backwards maybe to what you're trying to get to and I will round it for ease of discussions right now. We're delivering this year about 13,000 plus homes and somewhere let's round it up to $5 billion in revenues. If the developed lot cost is about 25% of that, that's about $1.25 billion. We already had told you we're going to be replenishing less land than we're delivering, so it is already factored to be something less than the $1.25 billion. So if I had to take a quick back of the envelope guesstimate, if we cut off land 100% in terms of purchases, it probably would reduce $1 billion of cash outflow that's already built into our numbers. That's kind of a rough guess over the next year.

Your next question comes from Larry Taylor - Credit Suisse. Larry Taylor - Credit Suisse: Thanks very much. A couple of different questions. One is, I wonder if you can give us on a regional basis or a little more detail sort of where you're seeing the most pressure on the price front?

Sure. I would say we definitely see more pressure building in the Southern California inland area. That really held, as the market slowed after '05, the market pricing there really held on much longer than the coastal areas, but it seemed to move up the coast, it kind of started at San Diego, moved up the coast to Orange County and L.A. and has now started moving inland, so we're definitely feeling a lot of pricing pressure in that marketplace. The other place I would have to say we're feeling pressure is in the Florida market in general. Fortunately we don't have a lot at all in the condominium niche there. It is a very small percent of our overall business there. But I think we actually only have perhaps one, maybe two condominium communities there, but we're seeing more pricing pressure on that product type, but in general Florida is tougher. The further south you go, the tougher it is. Fort Myers probably being the worst, the Palm Beach County market, southeast Florida, second worst. Orlando and Tampa are not nearly as affected as those prior two markets. Larry Taylor - Credit Suisse: Thanks. That's helpful. In terms of other places that you might be able to work to generate cash flow, how much do you think you might be able to cut G&A? I know you said you could cut head count if you needed to in various markets, but given that you made some progress there already, how big is that number going forward and is there any opportunity for land sales?

Well, as you might imagine, the land sale market is a little dry at the moment as most home builders like ourselves are being extremely conservative on new purchases. We did mention one that we just closed -- I believe it actually closed, the Fort Myers block of lots closed after the quarter ended so it is not reflected in our numbers but will be in the fourth quarter. We have the other one under contract that's actually about half of our position there. That's supposed to close in the fourth quarter if all holds, although you never know in this market. Other than that, we don't have any significant land sale parcels other than one smaller piece in Orlando to the tune of a couple of million dollars. It is not a huge amount. Larry Taylor - Credit Suisse: Then magnitude of the financial impact of additional headcount, potentially?

That's something we just look at market by market. Larry Sorsby: I just don't think we ever want to get into a position of projecting that for obvious reasons, Larry.

We just have to look constantly, and if a particular division reduces its volume dramatically then they are going to try to bring their overhead, including staffing levels, down appropriately. That's about as specific as we can be. Larry Taylor - Credit Suisse: Lastly, more of a big picture question. If you take the midpoint of your guidance for cash flow generation next year of 250 and all of us have different assumptions about what's going on happen in the housing markets in 2008. But conceivably with a weaker housing market or a weak housing market with even only modest improvements in '08, doesn't move the meter enormously in terms of some of your debt metrics or relieve some of the concerns that people may have about your balance sheet. Why not step harder on the brakes here and try and slow things down faster?

Well, frankly, we are trying to give a range that we feel very comfortable is doable. We are having significant renegotiations, and we'll see how the market bears out. We absolutely can take additional steps, really on a week by week basis if necessary, so we're going to monitor that closely. Obviously you don't want to choke off the land supply on good communities that are contributing, clearly many of our communities are still profitable and are contributing to our performance. So it doesn't make sense to reduce those, but suffice it to say I think you will see this quarter we'll probably be a lot more aggressive and we'll make I think a little more progress in generating the more significant cash flow.

Your next question comes from Carl Reichardt - Wachovia Securities. Carl Reichardt - Wachovia Securities: I wanted to ask, are there any geographic regions right now, particularly ones you expanded into relatively recently, that you're considering exiting on a permanent basis or are you happy with the geographic spread you have now?

No, we like the geographic spread. It is interesting because the markets have switched around and it is helpful to have a diversified presence. The problem right now is not any given market, and we've been in this a long time. Markets that are slow today will probably be some of the ones that rebound the strongest and the best later, so there is not any particular market that we're considering exiting at all. Carl Reichardt - Wachovia Securities: Great. Appreciate it. Thanks.

Your next question comes from Joel Locker - FBN Securities. Joel Locker - FBN Securities : I just noticed that actual customer deposits as a percentage of backlog dropped from about 5.1% last year to about 3.7% this year and I was wondering if it was geographic mix where you are taking less a percentage of deposits or is it something else? Larry Sorsby: The main reason for that drop is that in our Fort Myers market where we were getting the loan draws we talked about, we received the draws in excess of inventory costs as the construction is going on, but as the construction completes, which most of those homes are now complete, that excess goes down and that's the reason for the change. Most of the homes are now complete in our Fort Myers market where they wouldn't have been last year when you looked at that.

Generally speaking there hasn't been any change in the deposit amount or percentages that we take in a given market. Each market is different, interestingly enough, based on the local practices. In the Northeast 10% is common; in California, 3% is common. It is affected a little bit by your mix of backlog. Joel Locker - FBN Securities : Just a follow-up on your option contracts to buy land. There are so many different kinds, and I was just wondering what percentage, if any of the percent were actually payment options where if you step in 3% initially you are guaranteed to have to step in up to 15% say in the next two years, no matter if you take the lot down or not?

No. Larry Sorsby: Very little specific performance. In fact, it is a line item on our balance sheet, so we really don't have that issue.

Yes. They are pure options. Joel Locker - FBN Securities : Pure options so you can walk away? Larry Sorsby: $15 million on the balance sheet in July.

For total specific performance options or contracts, we generally shy away from that.

Your next question comes from Robert Manowitz - RBS. Robert Manowitz - RBS: A number of the questions earlier in a roundabout way questioned your confidence regarding your original second half '07 cash flow guidance. I would like to approach that slightly differently and I think it is somewhat of a fair question to ask how the third quarter cash flow fared versus your expectations? Was it better, worse, or in line? Larry Sorsby: I will tell you that our third quarter would have been virtually right in line with our expectation had we received our roughly $60 million tax refund which we had anticipated getting in our third quarter. Unfortunately it came I think on August 2, two days after our third quarter end, so if you add that back we were pretty much in line with our internal expectations. Robert Manowitz - RBS: I think that's an important point so I appreciate you highlighting that. Larry, the slide that you walked through on joint ventures, if I heard you correctly, of the 386 of notes payable in aggregate at the joint ventures, 186 was at one joint venture, was that correct? Larry Sorsby: Yes, I think that's right which was the HovStone joint venture with Blackstone. 168, not 186. Robert Manowitz - RBS: My mistake. Would you have the equity piece of the $545.9 million of equity in total for the JVs? Larry Sorsby: You're going to see that in the 10-Q.

You're asking about equity buys, specific JVs? Robert Manowitz - RBS: Well, I am just curious on the debt to cap ratio?

We don't break out specifics, but none of the JVs, not one, has in excess of 50% debt to cap, so they're all pretty uniformly low leverage. Robert Manowitz - RBS: Perfect. That's what I was looking for.

It is important to note that ironically, while some joint companies have their joint venture entities more highly leveraged than their main entity, in our cases it's lower leverage, just above 40% debt to cap.

Your next question comes from Alex Barron - Agency Trading Group. Alex Barron - Agency Trading Group: You have talked a lot about renegotiating the options which is a good thing. I just wanted to understand how many of your options are in active selling communities versus in communities that haven't even started selling? When you renegotiate those, to what profit level do you do it or is it just to break even, or how does that work? Larry Sorsby: I am going to take the second part of your question first and the guys here are seeing whether we have the answer to your first part easily at hand. But the second part, when we renegotiate an option we renegotiate it such that ignoring the sunk costs, the sunk costs being any deposit dollars we have put up or any predevelopment costs spent to date, the new cash we have to invest in that community based on today's current very low sales pace and today's current low sales price has to generate in excess of a 30% unlevered IRR for us to move forward on that option.

The first part of the question is of the 46,000 lots under option it is about half and half that are in active communities and in to be opened.

Just so you know, the to be opened communities, some of those have option expirations that are some years out. Those will more typically happen in the Northeast where we option a piece of property and take it through a long and lengthy regulatory process. Many of those are fairly early in the process. Alex Barron - Agency Trading Group: I guess I am just trying to understand have you guys walked or are you willing to walk from communities that you can't renegotiate? Larry Sorsby: Absolutely.

Absolutely. We're walking from active communities. We did it last quarter. So we just build out what we have remaining and walk away from the balance. Alex Barron - Agency Trading Group: I was just wondering why you hadn't walked away from some more. I have a hard time. Maybe you can help me, in what markets are options still making sense? Larry Sorsby: Let me answer the question this way. If we can generate on a go-forward basis in excess of a 30% unlevered IRR using today's lower than normal sales pace and low sales prices we think those communities make sense and there is a hell of a lot more upside than downside so we haven't walked away from them. As the market tightens further, if we need to walk away we will, but right now we think those are still solid deals and if we can renegotiate in excess of a 30% go-forward IRR, at a depression kind of level sales pace and price we just think it is a valid investment to make. Alex Barron - Agency Trading Group: Just real quickly, how many communities were impaired this quarter? Larry Sorsby: How many communities? Hold on. Alex Barron - Agency Trading Group: While you're at it, what are your best markets that you're still generating positive operating margins?

Houston, Dallas, Maryland are probably doing the best, and just below those would probably be North Carolina and parts of northern New Jersey they're doing well. Just behind that maybe northern Virginia and frankly, I think we're one of the exceptions there. I think many of our peers are having a tougher time there. We're not doing phenomenally well in returns, but we're generating some returns in that marketplace. Larry Sorsby: The answer is that we had 24 communities impaired in the third quarter. Of that 24, 19 were communities we had not previously impaired. Five were communities we had previously impaired.

Your next question comes from Shankar Menkobi of JP Morgan. Shankar Menkobi - JP Morgan: First of all, can you just help us with cancellation rates by market, both in this last quarter as well as what you talked about in August? Larry Sorsby: We're pretty good at providing lots of transparency and detail, but we've just never gotten to that granularity and I don't think I want to at this point. Historically good times, bad times, indifferent times, California has a higher cancellation rate; that holds true today. Partially due to the reason I mentioned earlier is they have low deposits, and we have less high cancellation rates in the Northeast where our deposits are higher. That's true good times, bad times, indifferent times. Shankar Menkobi - JP Morgan: How about Florida? Larry Sorsby: Well, Fort Myers we've talked a lot about, and probably the highest cancellation rate this year for anywhere in the country for us is Florida, primarily because of Fort Myers to where we've had significant cancellations. Shankar Menkobi - JP Morgan: Anything recent? Larry Sorsby: In terms of what? Shankar Menkobi - JP Morgan: In terms of is there a spike in cancellation rates down there?

I can't say we've seen really any dramatic change in terms of the geographic mix of cancellations. Cancellations for the quarter were 35%, for the month of August were 34%, and we haven't seen a lot of change in any particular market in cans. Now, in terms of new contracts, as I mentioned, its gotten a little weaker in the inland market and Florida and Southern California, and Florida has really been remained pretty weak, so no big changes there. Shankar Menkobi - JP Morgan: You talked about Florida and the inland obviously as being relatively weak. You talked about it basically being a price issue. Do you think that if we saw prices decline that wouldn't be as weak, meaning could volume pick up on price declines or there just is a buyer strike?

Well, it is a little bit of both. At the moment there is clearly, for the last few weeks has been a little more hesitancy as the media has really picked up steam on covering the slowdown in housing, but generally throughout the year we've seen pretty good price elasticity, so as we respond and adjust prices, the market typically responds and our sales pick up. That has generally been the case all year long.

Your next question comes from Rashid Dahod - Argus Research. Rashid Dahod - Argus Research: I had a question regarding the different types of buyers that you cater to -- the first time, the move up, et cetera -- are you seeing any signs of particular strength or weakness in terms of traffic or orders?

The first time buyers that clearly depended on more loose lending standards, those markets have been affected a little bit more. We saw a little bit of that in one or two communities in Bakersfield, and a couple of locations even in Houston which is generally a strong market; but it a market that really depended on typical sub-prime financing, that's been hit perhaps a bit harder. But generally speaking, it really is not price point specific what we're seeing. It is situationally specific. What are the competitors doing in pricing? What's that local supply in that micro market? That's really been more of the issues than any kind of generic comment I can make about price point. Rashid Dahod - Argus Research: I would think that the first time buyers are in somewhat of a favorable position in that they aren't burdened with selling a home but conversely as you mentioned, they might also be prone to stricter lending standards. How about in terms of cancellations? Have you seen any type of greater concentration in one type of buyer as opposed to the other?

No. I can't say we have with the exception just in the last quarter of buyers that had been approved for a sub-prime and then found that source evaporated which is generally, although not always, is often associated with a first time home buyer, but that's not always the case. But we did see more cancellations in that category during that quarter. Now, we don't anticipate that going forward frankly, because we're not originating much in terms of new sub-prime mortgage approvals. Larry Sorsby: I think the same comment holds true with respect to the tightening of Alt-A which could be conforming loan limits or jumbo loan limits, people that had strong credit and could even verify their income but wanted 100% loan to value, they are finding it more and more challenging to do that and we've had some cancellations as reflected by the tightening in Alt-A as well.

Your next question comes from Scott Cavanaugh - Merrill Lynch . Scott Cavanaugh - Merrill Lynch: Under your bank facility you have a minimum consolidated tangible net worth covenant. What is that current minimum and what is your headroom as of quarter end? Larry Sorsby: Again, I don't think we publicly disclose that. The more restrictive covenants we have already talked about we think we have sufficient room for a lot more impairments and a lot more operating losses than we've taken recently and we would still be okay.

Just one other thing just keep in mind, we don't anticipate having a lot drawn by year end under our revolving line of credit. If we're generating the cash flow we've got planned, it is very possible that we'll have nothing outstanding on the line regardless at some point in '08. Scott Cavanaugh - Merrill Lynch: On your credit facility, can you breakdown the percentage that you've used to pay down October maturity? Just trying to get a sense of how much cash you're used? Larry Sorsby: Well, you're assuming we used our revolver to do that. We told you that we've been generating cash flow in the fourth quarter and cash is kind of fungible, and you also had a $60 million tax refund. I don't know that we could answer that question other than to say that at quarter end, had we not bought back the 10.5, obviously the balance on the revolver would be less. But to make the conclusion we just used the revolver to do it, cash is fungible, I don't know that that's an accurate assumption for you to make. Scott Cavanaugh - Merrill Lynch: So at quarter end the balance on the credit facility reflects your? Larry Sorsby: Quarter end of fourth quarter. It just happened, that the buying back of the 10.5 and the remainder of the 10.5 is a fourth quarter event, not a third quarter event. Scott Cavanaugh - Merrill Lynch: What you're telling me -- and correct me if I'm wrong -- is that the $6 million benefit from the tax and the cash flow from operations you didn't have to use your credit facility to help pay down this debt?

Again, it is not like a dollar goes from one location specifically to another. All sources of cash go into one pool and outflows of cash go into another pool. There are many sources. We will be generating significant cash flow and that's already begun in our fourth quarter that will be more than enough. Larry Sorsby: We have paid off in its entirely the $150 million of 10.5.

And still pay down our credit facility. Larry Sorsby: Yes.

Hopefully that answers it for you.

Your next question comes from Keith Wiley - Goldman Sachs. Keith Wiley - Goldman Sachs: You mentioned about the construction loans that you made that some are defaulting. Larry Sorsby: No, we didn't make any construction loans, not one construction loan did we make. Keith Wiley - Goldman Sachs: Could you clarify what you said there? Larry Sorsby: I said that our home buyers in Fort Myers got loans from third party construction lenders. Keith Wiley - Goldman Sachs: Excellent. Okay. Then second, your forecast next year for cash flow is $100 million to $400 million, if I am interpreting your comments right, the $100 million would be more if you are able to renegotiate your options down a whole bunch and therefore you end up buying/replacing more land. And if you're unsuccessful at negotiating those options down you would come in at the higher level, 300 or 400? Larry Sorsby: That's not how we think about it. But if it makes you feel good, go ahead.

Frankly, Keith, we're just trying to factor in a lot of moving parts. Part of cash flow generation is what's happening in sales, what's happening in cancellation rates, what's happening in mortgage availability as well as our new purchases of land and renegotiations. We try to factor all of that in, and what we're saying is net/net of all of those factors that's the range we're very comfortable with at this stage. Keith Wiley - Goldman Sachs: Lastly, I am trying to figure out if 30% IRR is really enough given that your earnings are negative this year and your returns on negative this year. How much have you increased your IRR for new purchases relative to what you were doing in prior years?

Well in prior, 30% has been a pretty consistent IRR hurdle rate. What happened for many years is we purchased based on an IRR of 30% but then the market appreciated and instead of 30% the investments yielded returns of 40% or 50% or more; then on some of the newer purchases what we thought was at a 30% IRR turned out to be an IRR of 20% or 10%, as the market deteriorated our IRR went down. As we are renegotiating what we are doing is taking the lowest pricing that's offered as of the last few weeks in a location net of every concession out there and taking the most recent sales pace, not the pace over the last year but we're looking back over the last four to eight weeks and then we're projecting that pace and working backwards to generate a 30% IRR. Even if we're wrong, in the overwhelming majority of the cases we are not putting additional deposit dollars up so we would be in no worse a shape than we were. I would love to renegotiate to a higher than a 30% IRR. It is just not very easy to do or realistic to do. What's happened, just so you know the mathematics, if a developed lot is 25% or 30% of the sales price, if the house price goes down 10%, the land price has to go down 30% to make the economics work. If the house price goes down 15%, the land may have to go down almost in half, so there are challenges in getting even higher IRRs. I can assure you I would be thrilled if we can take every parcel and translate it to a 30% IRR. That would translate to something much greater than a 20% ROE. Keith Wiley - Goldman Sachs: Well I guess that's my point, is that the stuff that you bought earlier hasn't panned out this year from an earnings perspective or return on equity perspective, so I would have guessed that you would have raised your hurdle rates and then what I am hearing from the home builders is that people aren't cutting land prices, so if land prices have to come down by 30% for every 10% drop in home prices, but the home builders are saying loan prices really aren't coming down, then why buy any land? Why replace any land?

On a brand new deal that hasn't been sold, land prices have not come down; they have come down but not nearly enough to make new acquisition sense. That's why you haven't seen much new activity in that regard. However, if there is a community that's under development and the properties already under option and it's proceeding but prices fall, in many cases the sellers are absolutely willing to discuss price and lower their price. Obviously we're only proceeding if they are willing to lower it sufficiently to get to a price that makes a reasonable return for us. It's getting more and more challenging without a doubt as the market deteriorates, but we're sticking to the discipline. Larry Sorsby: If they don't, we walk away.

As I said, this quarter coming up, our fourth quarter happens to have a lot of properties that are in negotiation where the options are due for takes and where we feel the price and terms don't make sense, so we're in active renegotiation, and if we can't get to prices and pace that makes sense, we'll be walking.

Your next question comes from Michael Rehaut – JP Morgan. Michael Rehaut - JP Morgan: On the cost side, to shift gears a little bit, you've been able to keep SG&A right around 135 give or take 1 million on a base of about 1.1 billion of revenues. Also, the gross margins have been coming down obviously more with the incentives but all else equal, you've mentioned that you continue to do a lot on the cost side. If things just stay where they are, can you give us an idea what you're looking at in terms of incremental savings on the SG&A or the COGS side as you're still slightly negative on an EPS before charges? Larry Sorsby: I think probably the way for you to look at that is, although we're pedaling fast trying to cut costs, it has been difficult to cut them as fast as our volumes have slipped. So we're going to be looking business unit by business unit as Ara mentioned, that if their volumes that they're projecting for '08 decline we'll have to take appropriate action at those business units, but for your model purposes, you probably better off just projecting the numbers that you just mentioned. Michael Rehaut - JP Morgan: Well to further clarify, certainly if volume falls further you can potentially have even worse leverage on the SG&A, but are there any specific numbers that you have in terms of goals as you continue to work with your different divisions in right sizing today? Not just on the SG&A side but on a suppliers side or is it that maybe all else equal, the SG&A, for example, which is in the 135 per quarter range might get to 125 or 115? Larry Sorsby: Nothing that we can make public at this point. We've already worked hard with our subcontractors, and they have shared the pain with us, and we're going to ask them to share the pain going forward as the pain increases, but it is very hard to quantify a $5 million benefit per quarter or $55 million benefit per quarter. Just rest assured that we're taking every step that we possibly can to lower our cost structure on a continuous basis.

Let's say this. We certainly would not want our SG&A as a percentage of sales to go up if sales and revenues continue to drop. We're going to work hard to not let it worsen. It is already a higher percentage, so it is kind of a benchmark we'll be looking at.

At this time we have no further questions in queue. I'd like to turn the call back over to our speakers for any closing remarks they may have.

Thank you very much. As I made the comment in my closing comments earlier, we have been through these before. It is not fun, but we know what we have to do and we're working hard to make that happen. There is a particular focus on the cash flow right now and we will look forward to reporting some good progress in that regard in our next call. Thank you very much.