This summary is based on the third quarter fiscal 2007 earnings call conducted by Hovnanian Enterprises, Inc. (HOV: chart) on September 6, 2007.

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

Key Investors Issues

- EPS were a loss of $1.27 a share compared to earnings of $1.15 a share last year.
- Net loss was $80.5 million compared to earnings of $74.4 million a year earlier.
- Revenue fell 27% to $1.1 billion.

Third Quarter Highlights

Mortgage underwriting criteria have tightened and there is a lot of negative psychology out in the market causing hesitancy among buyers.

Customers are waiting, trying to pick the bottom of the market decline. Clearly news coverage of the collapse of the sub-prime mortgage, falling home prices, credit liquidity issues and further tightening and availability of jumbo and Alt-A mortgage programs does not help boost consumer confidence.

The company was experiencing a positive trend in contract comparisons through each month of the third quarter. Buyer psychology was starting to turn month by month, helped in part by increasing price concessions. Net contracts were down 35% year over year in May, only down 22% in June and down 16% in July year over year. Unfortunately this improvement did not continue into August after the end of third quarter.

Similar to what happened in March earlier this year, home buyer confidence once again declined in August.

- In March it fell as the sub-prime phenomenon hit.
- In August, the positive momentum stopped as the credit problems spread to the Alt-A market and the pricing and availability of jumbo loans.
- Credit markets around the world started to feel the effects of liquidity crisis, causing extra media attention.
- Contracts went from the minus 16% in July to minus 24% in August.
- The only positive indicator is that despite the negative views, traffic only decreased from 13.2 to 11.8.
- There are interested buyers there. The challenge is mortgage qualification and buyer psychology.

The Federal Reserve stepped in and lowered the discount rate and has taken additional steps to inject liquidity into the banking system and ultimately shore up the mortgage markets.

President Bush announced a plan to have the FHA step in to assist buyers with guarantees on certain mortgages, and the Federal Reserve has suggested additional actions that are possible if they need to help the markets further. Over the long term, steps like these are likely to increase liquidity in the mortgage market and bring stability.

Despite ongoing turmoil in the mortgage markets, the company continues to close a significant volume of mortgages on a daily basis through mortgage company.

The quality of the mortgages that the company originates on behalf of its buyers, as evidenced by the higher FICO scores and lower default rates than national averages, continues to makes the vast majority of mortgages attractive to some of the largest and most well capitalized financial institutions that buy paper. This includes Chase, Citi and Countrywide. These three institutions collectively purchase 95% of the mortgages that the company originated in the third quarter.

In accordance with GAAP requirements, the company continues to evaluate all of its own land for potential impairments at the end of every quarter. The company does this across the board in communities that are open for sale as well as those that are not yet open. Certain communities that previously continued to show a profit fell to a net loss projection once the company factored in the fall-off in pace and pricing that it experienced. This led to a total of $87.4 million in impairments.

Impairments over the past four quarters have been largely concentrated in two states: Florida and California. The company made investments in Florida in 2005, primarily in Fort Myers, and it is now paying a price for the poor timing. While the coastal markets in Southern California contributed to much of the impairment in the fourth quarter of 2006, the decline in sales pace and pricing swung more to the inland empire and central valley markets during the second and third quarters of 2007, and that is where more of California impairments in the third quarter were realized.

The company incurred $21.2 million in charges related to lot option walkaways.

- The company terminated and walked away from land contracts totaling about 4,500 lots, which resulted in these changes.
- The company is continuing to actively renegotiate, extend, and in some cases terminate land option takedowns.
- The company uses a rigorous analysis methodology and it reviews the most recent comparative information on sales and pricing for market competition to project potential absorption and pricing going toward.

The company ended the quarter with 46,747 option lots which are cut almost in half from the level in the April quarter last year, down about a third from the July quarter of last year.

Owned lot position was 32,576 lots at the end of July 2007. This is down about 11% from the peak a year ago in July of 2006, and the company expects it to continue to decline as pace of lot takedowns under option remains below pace of deliveries. The number of land option contracts is currently in the process of renegotiation. Either there will be changes in prices and terms or there will be additional walkaway charges booked in the fourth quarters. In either case, the company will spend less cash on future option takedowns, causing a positive impact on future cash flows.