Ara K. Hovnanian – President, Chief Executive Officer Paul W. Buchanan – Senior Vice President, CorporateController Kevin C. Hake – Senior Vice President, Finance and Treasurer J. Larry Sorsby – Executive Vice President, Chief FinancialOfficer Brad O’Connor – Vice President, Associate CorporateController Jeff O’Keefe – Director of Investor Relations

Stephen Kim - Citigroup Michael Rehaut – JP Morgan Securities Inc. David Goldberg – UBS Carl Reichardt – Wachovia Securities Andrew Brausa - Banc of America Securities Nishu Sood - Deutsche Bank Mike Wood - Banc of America Securities Wayne Cooperman - Cobalt Capital Susan Berliner - Bear Stearns Larry Taylor - Credit Suisse Alex Barron - Agency Trading Group Jim Wilson - JMP Securities Chris Melendez - J.P. Morgan Keith Wiley - Goldman Sachs Timothy Jones - Wasserman & Associates Joel Locker - FBN Securities

Good morning and thank you for joining us today forHovnanian Enterprises’ fiscal 2007 fourth quarter earnings conference call. Bynow you should have received a copy of the earnings press release. However, ifanyone is missing a copy and would like one please contact Donna Roberts at732-383-2200. We will send you a copy of the release and ensure that you are onthe company’s distribution list. There will be a replay of today’s call. This telephone replaywill be available after the completion of the call and run for one week. Thereplay can be accessed by dialing 888-286-8010, pass code 47517323. Again, thereplay number is 888-286-8010, pass code 47517323. An archive of the webcastlive will be available for 12 months. This conference is being recorded forrebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the fourthquarter results and then open up the line for questions. The company will alsobe webcasting a flat presentation, along with the opening comments formanagement. The slides are available on the investors’ page of the companywebsite at www.khov.com. Those listeners that would like to follow along shouldlog on to the website at this time. Before we begin I would like to remind everyone that thecautionary language and forward-looking statements contained in the pressrelease also applies to any comments made during this conference call and theinformation on the slide presentation. I would now like to turn the call over to the management,Mr. Ara Hovnanian, President and Chief Executive Officer of HovnanianEnterprises. Ara, please go ahead. Ara K. Hovnanian: Good morning and thank you for participating in today’s callto review the results of our fourth quarter and fiscal year ended October ’07.Joining me from the company are Larry Sorsby, Executive Vice President and CFO,Kevin Hake, Senior Vice President and Treasurer, Paul Buchanan, Senior VicePresident and Corporate Controller, Brad O’Connor, Vice President and AssociateCorporate Controller, and Jeff O’Keefe, Director of Investor Relations. Overall the housing market remains very challenging,resulting the first fiscal year loss for our company in a very long time. For afull year the company was just below break even before land related andintangible charges, with a pre-tax loss of $21 million equivalent to about0.04% of revenues. -- 51. We’re working hard on the cost side of the equationto get us on the other side of break even. We’ve had further reductions inconstruction costs and overheads. In addition, the significant number of ourremaining land options have been renegotiated, reducing our land costs andextending terms, which should also help our margins as we build through our ownloss and start to deliver more homes on lots with renegotiated prices. The sizable loss we are reporting for fiscal ’07 was largelyrelated to our charges in the fourth quarter and the full year, so I’d like tobegin by discussing those charges. First, charges regarding definite lifeintangibles. If you turn to slide two, in the fourth quarter we wrote off $78million of definite life intangibles. These were most of the remainingintangibles associated with the various company acquisitions over the lastseven or eight years. In total we impaired or amortized $217 million indefinite life intangibles in fiscal ’06 and fiscal ’07. As you can see on the slide, we ended ’07 with only $4.2million remaining in definite life intangibles. This means that there’s verylittle definite life intangible balance left for any further potentialimpairments. It also means we will no longer have the expenses associated withamortizing these assets, which have been running 30, 40 or even 50 milliondollars per year over the last few years. We do have approximately $32 millionof good will remaining, however, the majority of that is associated with our1999 acquisition of Goodman Homes in Dallas, which is remaining solidlyprofitable throughout the industry’s current cyclical correction. Next I’ll discuss land option walkaways. We took charges of$105 million related to land option walkaways in the fourth quarter and $126million for the full fiscal year as shown on slide number three. These chargesrepresent the amount invested in these options, primarily the option deposits.In addition, there were $77 million of impairments that were indirectlyassociated with the land option walkaways. Basically, if we walked away from the remaining sections ofan ongoing project some of the common infrastructure costs were reallocated toland that we own, which triggered impairments in certain cases. Thus thecombination of direct and indirect walk-away costs was over $180 million and,therefore, the largest component of our pre-tax charges for the quarter. Theseadditional walk-away costs recorded in the fourth quarter resulted from ourshift to an even greater focus on cash flow versus profits, as well as acontinued softening of the market at the end of our fiscal year. We terminated and walked away from land contracts totalingabout 9,000 lots during the quarter and about 18,000 lots for the full year.Our remaining investments in option deposits has dropped dramatically fromabout $275 million at the end of the third quarter to about $148 million at theend of our fourth quarter. In our more challenging operations our land option positionshave come down even further. In Florida, California, Minnesota and Chicago weonly have about 4,200 options remaining out of a total option positioncompany-wide of about 36,000 options. Most of the price or terms or both havebeen renegotiated on these remaining options so they make economic sense goingforward even in this environment. The majority do not have land takedown untilafter fiscal ’08. In fact, in one of our two remaining parcels under option inCalifornia no land takedowns are scheduled to occur until 2010. The majority of our remaining loss under option are inTexas, North Carolina, Washington, D.C., and the Northeast – about 27,000 totalin these areas or 75% of the total of all of our options. In Texas and NorthCarolina we are generally taking down lots on a rolling option basis fromdevelopers and thus we have a very short position in owned lots. Those twomarkets represent a little less than half of the above total. The markets inTexas and North Carolina have performed relatively well and certainly betterthan California, Florida and the Midwest. Although conditions are obviouslyslow, sales and pricing have also held up better in D.C. and the Northeast thanin California and Florida. In some of these markets the resale listings have started tolevel off. This began to occur in markets like New Jersey, as you can see inslide number four, and in Virginia, as you can see in slide number five.Virginia actually had a lower level of listings in the summer of ’07 than inthe summer of ’06. Even the more challenging markets in Florida like Tampa areshowing signs of leveling. This gives us some reason for optimism. Obviously,while the trends show some leveling they are still at very high levels. We needto see the existing home inventories come down further for the markets toimprove. Excuse me. Tampa was on slide six. Our lot position has been reduced dramatically. We reducedour lot position by over 10,000 lots in the fourth quarter from the thirdquarter. Our remaining 36,000 option lots constitute about a 2.7 year supply atour most recent fiscal year pace. In the most challenging markets, like Californiaand Florida, we are down to very few remaining lots, less than 10% of thetotal, and many of those, most of those in fact have been renegotiated. Hence,we believe that our risks of further land option walkaways are dramaticallyless going forward than they have been for the past two years. Next category of pre-tax charges relates to impairments. Asshown on the slide, we incurred impairment charges of $168 million related toland in communities that we own in the fourth quarter and $332 million for thefull fiscal year. As I mentioned earlier, nearly half of our impairments inthe fourth quarter were actually the result of land option walkaways causing are-allocation of common costs into the remaining owned lots. The balance of theimpairments are the result of a slower sales pace and/or lower pricing in othercommunities where we owned lots. We’ve impaired a total of 98 communities in ’06 and ’07.About half of the remaining active communities – 101 communities in Texas and52 in North Carolina – are located in states with a high community count andstates that remain profitable with far lower risks of impairment. While there’salways some risk of further impairments, our exposure is far less in thesemarkets today. On our communities in Florida, California, Chicago, andMinnesota, some of our more challenging markets, we’ve already recognized atotal of $442 million of impairments in ’06 and ’07, so our exposure continuesto reduce in these markets as well. Let me talk for a moment about pricing. I’ll focus onCalifornia because this is one of the markets where we saw some of the biggestprice appreciation toward the end of the cycle. Prices of new homes have comedown substantially in California, which has lead to the large dollar impairmentsthat we have taken in that state. Turn to slide seven. You see an example oftwo different communities where our prices have come down over the last 12months by 28% and 35% respectively. I wish I could say these were theexceptions in California, but they are not. Somehow, this kind of pricereduction does not readily show itself in public data, but it is very real. Newhomes have rolled back to prices of many years ago, before the hyper-heatedmarket. Taking a step back for a minute and looking at new homeprices in general as compared to the price of existing homes, an unusualphenomenon has occurred. Turn to slide eight. We’ve tried to illustrate thathistorically new homes, represented by the red line, were priced higher thanequivalent existing homes, represented by the dashed blue line. However,homebuilders have lowered prices on their new homes much more dramatically thanexisting home owners have been willing to lower prices on their homes. Thepublic builders in particular have lowered prices dramatically to moveinventory. Now things are backwards, with new homes selling at a discount toexisting home levels. We believe that when market analysts speak of thecorrections that need to come in home prices what they’re really focused on arethe existing home prices and their need to lower their prices similar to whatthe homebuilders have done with new home prices over the last 18 months. Thewidely discussed Case-Shiller Index tracks changes in existing home prices andthis can often be misleading and confusing. As existing home owners move pricesto be competitive with prices of new homes there’s likely to be more salesactivity for everyone as potential home buyers must often sell an existing hometo buy a new home. Okay. Enough about macro-economics. Let me get back to ourfiscal year. The combination of a slight pre-tax loss before charges with thesignificant land and intangible charges resulted in a total pre-tax loss forthe year of $647 million. We made over $1 billion pre-tax in ’05 and ’06 and,unfortunately, we’re giving back a big chunk of those profits in ’07. Thatleaves us with the last major area of charges for the quarter and the year,which are related to taxes and FAS-109. Normally when we record losses we would be recognizing a significanttax benefit. Many of the losses, primarily related to impairments of land, arenot eligible for a current tax refund until we actually sell the inventory. Butthe tax benefit can be carried forward for 20 years. After a recentconsultation with our auditors regarding the application of FAS-109 we concluded that we should booka $216 million after-tax non-cash valuation allowance during the fourthquarter. The FAS-109 charge was for GAAP purposes only. For tax purposes, again, our tax asset may be carriedforward for 20 years and we fully expect to utilize those tax lawcarry-forwards as we generate profits in the future. The net result is that weare recording taxes for the fourth quarter in spite of our losses. Thecombination of our losses from operations and charges including FAS-109resulted in an after-tax loss for fiscal ’07 of $638 million. Larry willqualify the issue, will further clarify the issues revolving around FAS-109 ina moment. After all of our walkaways, impairments, and FAS-109adjustments we still ended the year with approximately $1.3 billion inshareholders equity or approximately $19 per common share. Our share price isstill trading at about 40% of book value, even after all of these charges I’vejust described. Now I’ll comment on our cash flow and debt reduction. Forthe fourth quarter of fiscal ’07 we were significantly ahead of our previouscash flow guidance of 175 to 250 million dollars as we generated $376 millionof cash flow in the fourth quarter. We used the cash we generated during thefourth quarter to reduce our debt. We retired the remaining $140 million of our10.5% senior notes and reduced the amount drawn under our $1.5 billion unsecured revolving line of credit by $250million from about $456 million in the third quarter to about $207 million atthe end of the fiscal year. We anticipate increasing our bank borrowings modestly in thefirst half of fiscal ’08 with the reductions weighted towards the second halfof the year, which follows our typical seasonal pattern. On slide 19 you cansee that typical seasonal pattern. You also see the cash flows were better in’07 than they were in ’06 and we expect them to be better in ’08 than they werein ’07, with more than $100 million of cash flow generated in total in ’08. Sales. Our net contracts for the fourth quarter were down10% compared to the prior year, but as we stated in our November announcement ,sales for the period were helped by our national sales promotion in Septemberpartially offset by significantly slower sales after the promotion.Interestingly, our contract pace in December – normally the slowest month ofthe year – has been higher than the contract pace in October and November.Obviously a few weeks does not constitute a trend, but we’re encouraged thatDecember sales pace has improved significantly. Let me give a little more detail on our national salespromotion in September. We reported approximately 2,100 sales. They’recomprised of 1,700 contracts and 400 sales deposits during the sales. On slide10 you see that through November 25th we converted 206 of thosedeposits into contracts and ended up with about 1,920 gross contracts from thatsales promotion. Four-hundred-and-eighteen of these contracts have cancelled todate representing a 22% cancellation rate thus far. This compares to ourconsolidated cancellation rate of 40% during the fourth quarter. Another 451homes have delivered and that means we still have a little over 1,000 homes todeliver over the next few quarters. All in all we are very happy with thesuccess that we had in this nation-wide sales promotion. We exceeded ourinternal goals by a wide margin. Now let me get back to talking about cash flow and debtreduction, which we are accomplishing largely by reducing our inventories. Ifyou turn to slide 11, we ended the year with 36,000 option lots. It’s downabout 59% from the peak in April ’06. This reduction has been painful, asdemonstrated by our charges, but it is the prudent thing to do. Today we areproceeding more cautiously in converting optioned land to owned land. We are atthe point now where each land take must be approved by me personally. While itonce was enough for our divisions to move forward with a land take if theinitial transaction was approved and it was in our budget, we are now beingeven more diligent and re-examining all aspects of a land take at corporatebefore we move forward. Our owned lot position was just a little over 28,000 lots atthe end of October. This was down 21% from a peak a year ago in July of ’06.It’s a little over a 24 month supply at the ’07 pace. We expect our total landposition to continue to decline as our pace of lot takedowns under optionsremains below our pace of deliveries. We will soon be burning through our oldland supply and replenishing it with renegotiated land. If our cash flows are not meeting our targets or if ourliquidity becomes more of a concern we could reduce our remain land takedownseven further or eliminate them entirely. At this stage we are primarily takingdown lots that will generate a good margin and already have a home contract onthem. Other areas of inventory management. We are also keeping aclose eye on dollars that we are spending on land development. During thequarter we mothballed communities where current performance did not justifyfurther investment at this time. We’d prefer to avoid spending money to improvethe land today and save the raw land until such time as the markets improve andwe can generate higher returns. We are also closely monitoring the total number of ourstarted unsold homes under more stringent criteria. Our strategy historicallyhas been to build homes after we have a contract and today we are moredisciplined than ever in controlling the number of unsold homes that arestarted. We ended the quarter with 5.5 started unsold homes per community.That’s down from 6.2 homes per community in the third quarter, as you can seeon slide 12. Based on the most recent quarter’s sales pace, we have onlya 2.6-month supply of started unsold homes compared to an average of 7.2 monthswith the industry. We’ve been able to manage this portion of our inventory welland will continue to make strides to reduce our capital that is tied up inthese started unsold homes. In absolute terms, the total number of spec homesstarted has come down from about 2,942 homes at year end ’06 to about 2,390 atthis most recent year end. The market is too challenging right now to make accurateforecasts for fiscal ’08. Fiscal ’08 will clearly be a difficult year, butwe’ve already taken significant steps to position ourselves and reduce ouroverheads to be better prepared for an environment with lower sales and prices. I’ll now turn it over to Larry Sorsby to discuss our fourthquarter and the full financial year performance in greater detail. J. Larry Sorsby: Thank you, Ara. Let me start by further explaining one ofthe more complicated components of our year-end release. On December 7thErnst and Young distributed their interpretation of FAS-109 as it applies tohomebuilders. After consulting with E&Y and completing our own research onFAS-109, we determined that we were required to take an after-tax non-cashcharge during the fourth quarter by reporting a $216 million valuationallowance against our deferred-tax assets. Even though 2007 represented ourfirst loss in many years and we only had a $21 million pre-tax loss prior toland-related charges and all impairments, under FAS-109 we were required to setup valuation allowance for our deferred tax assets. Due to our October year end, we once again find ourselvesbeing the first builder that has to deal with a new or unusual accountingissue. I can assure you that the other public builders will also soon bedealing with this issue. So let me try to explain and clarify how FAS-109works. Under FAS-109 homebuilders were advised that they have to determine ifthey are in a three-year cumulative loss position. Even with the $626 millionnon-cash pre-tax charges we took during fiscal 2007, we determined that we werenot in a three-year accumulative loss position at our October 31st,2007, year end. However, this fact did not cause FAS-109 issues to go away. Wewere then advised that even if we were not in a three-year accumulative lossposition at the end of 2007 we then had to project forwards to ascertainwhether it was likely we would be in a three-year cumulative loss position atthe end of fiscal 2008. That meant that we had to drop off our highlyprofitable 2005 year and replace it with our 2008 projections. We determinedthat it was likely that we would be in a three-year accumulative loss positionby the end of 2008 and that is why we booked a $216 million non-cash after-taxvaluation allowance against our deferred-tax assets. The non-cash charge was for GAAP purposes only. For taxpurposes the tax deductions associated with the company’s deferred-tax assetsmay be carried forward for 20 years. Although financial accounting requirementslimits the company’s ability to consider future profits in determining the needfor evaluation allowance, the company is confident that it will generatesufficient profits in the future to openly and fully utilize its deferred taxassets. As we generate future profits the valuation allowance reserve willreverse such that we will not have to pay any federal taxes on our earnings.Once we can determine that we are no longer in a three-year accumulative lossposition the entire remaining valuation allowance will be reversed. We are concerned that not all accounting firms and homebuilding companies will interpret FAS-109 in the same way. Due to the cyclicalnature of the home building industry, the fact that most home builders haveonly experienced one year of losses, and the idea that it is probable that thehome building industry will return to profitability during near term years, itis likely that not all accounting firms will interpret FAS-109 in the samemanner. Certain homebuilders, with the concurrence of their outsideauditors, will likely not look forward to ascertain if they project that theywill be in a three-year accumulative loss position at the end of their 2008fiscal year. Even if those companies are actually in a three-year accumulativeloss position at the end of 2008 year their accounting firms may advise themnot to book a tax charge if they believe that that charge will likely bereversed due to profits being generated in the near-term future. Unfortunately,there’s likely to be an inconsistent application of FAS-109 across ourindustry. While our valuation allowance charge was non-cash in natureit did affect our balance sheet and our net worth by $216 million. As a resultof the FAS-109 charge we needed waivers from our banks with respect to ourtangible net worth covenant and our credit facility. We received approval fromour lenders for the necessary waiver. Without the $216 million FAS-109 chargewe would not have needed a waiver from our banks and we would have been in fullcompliance with all our bank covenants at October 31st, 2007. We have also begun discussions with our bank group regardingan amendment of our current credit facility in anticipation of more challengingratios in fiscal ’08. The majority of the public home builders have alreadysuccessfully admitted their credit facilities at least once. Many of themadmitted at least two to three times to better operate under the currenthousing market conditions. This will be our first amendment since the housingdownturn began. We have a strong long-standing relationship with many of thebanks in our revolving credits facility. Based on our initial discussions webelieve that we will be able to successfully negotiate changes that are neededto the credit agreement to adjust for the change in tax treatment, as well asto provide us with adequate operating room as we manage the remainder of thecurrent housing slow down. We expect to close in late January 2008. Let me touch on the mortgage markets and our mortgagefinance operations since that area continues to get a fair amount of attention.I want to comment briefly on the plan announced by President Bush to clean upthe mortgage crisis a couple weeks ago. The steps outlined by the Presidentwill certainly help reduce the number of homes which could be exposed toforeclosures. Obviously this is a positive for the market, both structurallyand psychologically. Similarly, with respect to the fed decision to lower thediscount rate another 25 basis points, this too will have a slightly positiveimpact. Again, the impact will be more helpful to home buyers’ psychology. If you turn to slide 13, our recent data indicates that theaverage credit quality of our mortgage customers remains higher than nationalaverages. The average FICO score for all of fiscal 2007 was 725; higher thanthe 715 achieved in fiscal 2006. Of course, some of this improvement in ourFICO scores is likely linked to tighter underwriting criteria in the fall offand sub-prime originations this year. The percentage of buyers using adjustable rate mortgagesdeclined to 7% in the fourth quarter bringing the full year to 14% of ouroriginations compared to 32% for the full fiscal year of ’06. For the fourthquarter of ’07, 93% of our customers utilized a fixed-rate mortgage to purchasetheir home. Turning to slide 14. We show a breakout of all of thevarious loan types originated by our mortgage operations during fiscal ’06compared to the fourth quarter of fiscal ’07. Keep in mind that we sell all ofour loans on a whole-loan basis. We identify a buyer of the loans prior toclosing on the loan and would not go to the closing table with a loan that wedid not have pre-sold. Our conventional prime loan business, defined asconventional loans with full documentation of income and assets with eitherconforming or non-conforming loan limits, has increased from 48.7% duringfiscal ’06 to 56.7% in the fourth quarter of fiscal ’07. There has been noissue regarding availability of conforming conventional loans. FHA and VA loans also increased somewhat to 10.6% during thefourth quarter of ’07 from 7.2% of total originations in fiscal ’06. There hassimilarly been no issue of availability of FHA and VA loans. As underwritingcriteria for sub-prime mortgages has tightened, our level of sub-prime businesshas continued to contract. The amount of sub-prime mortgages generated by ourmortgage company declined from 11.1% during fiscal ’06 to 3.7% of total loanvolume during fiscal ’07 and accounted for only 1% of our volume during thefourth quarter of ’07. Alt-A loans were 22% of our volume in ’06, 27% of our volumein ’07, and 26.1% during the fourth quarter of ’07. It has risen slightly over’06 because it has filled some of the gap created by the sharp reduction ofsub-prime loan availability. To reiterate what we told you on our last call, the industryis going back to mortgage lending 101 basics: if the borrower can verify theirincome and assets, are willing to put down a reasonable down payment, and havea track record of paying their bills on time there are loans that are available.The market has just returned to sound mortgage credit underwriting criteriaprinciples. The percentage of our loans that were conforming loan limitsincreased during the fourth quarter to 95% from 91% in the third quarter. Thatmeans that only 5% of our originations are jumbo loans, which have recentlybeen more challenging in terms of rates and availability. Our pre-tax earnings from financial services was $28 millionin fiscal ’07, down slightly from the prior year primarily based on lower volumes. Now turning back to the performance of our home buildingoperations in the third quarter. Our contract backlog on October 31st,’07, excluding unconsolidated joint ventures was 5,938 homes with a dollarvalue of about $2 billion. On slide 15 we show the backlog at October 31stfor the prior five years and we provide a breakout of the portion of backlogassociated with our Fort Myers-Cape Coral operations. The end of our fourthquarter of fiscal ’07, 1,652 homes amounting to $459 million of backlog orassociated with the company’s Fort Myers-Cape Coral operations. Our operations in this market are very different from mostof our company’s divisions and we’ve commented that we view Fort Myers aslikely the worst housing market in the country. So we think it is worthproviding some additional clarity on the status of this sizable sales backlogand the change you will see in this when we report our first quarter 2008results. Most of our home buyers in this market first buy a lot fromus and then use construction financing from a third-party lender to build ahome. We typically receive between 75% and 90% of the purchase price from ourFort Myers customers via their construction loans. However – given that themarket has deteriorated so significantly in Fort Myers, many buyers have chosennot to convert to permanent financing where we would normally receive thebalance of our sales price. Approximately 1,400 of the 1,652 homes in our Fort Myersbacklog are expected to deliver during the first quarter of 2008 becauseconstruction is now completed and we no longer have any further continuinginvolvement. Since we will not be receiving the last 10% to 25% of our purchaseprice from the customers who have not closed on a permanent loan we will reportdeliveries for these homes at a gross margin close to zero and these closingswill cause our first quarter consolidated gross margin to be much lower thanotherwise would have occurred. As of October 31st, 2007, our remaininginvestment in land and lots in Fort Myers is only $20 million. So our exposureto this market is rather minimal going forward. Notwithstanding the effects of Fort Myers, the incentivesand price reductions that we’ve instituted across the country have kept ourmargins below normal levels for the past several quarters. Reflecting thecontinued weakening of the housing market, our home building gross margin was10.9% for the fourth quarter of ’07. Regarding SG&A we have made difficult decisions withrespect to our staffing levels. So the number of full time associates is down –excuse me. So far the number of full time associates is down 43% from peaklevels in June 2006. Making these decisions is never taken lightly, but it isnecessary to take these actions when they’re called for by the difficultoperating headwinds that our industry faces today. Our staffing reductionsshould help our SG&A levels for fiscal 2008. Our indefinite unconsolidated joint ventures declined to$176 million as of October 31st, ’07, compared to $213 million at theend of last year. Turning to slide 16, we have continued to maintain modestleverage in our joint ventures and to finance them solely on a non-recoursebasis. At year end our debt to cap of all of our joint ventures in theaggregate was 45%. We report significant details on the balance sheet andprofits of our unconsolidated joint ventures in our 10-Q’s and 10-K’s, so lookthere for more details. Now I’ll comment further on our cash flow and liquidity.Although we’re working to generate positive cash flow by reducing ourinventories, EBIDTA has been declining in line with our profits. For all of2007 we generated adjusted EBIDTA of $135 million down from adjusted EBIDTA of$753 million last year. Adjusted EBIDTA represents earnings before interest expense,income taxes, depreciation, amortization, and land charges. A reconciliation ofour company’s consolidated adjusted EBIDTA to net income can be found as anattachment to our quarterly earnings release. Due to the slowing velocity of deliveries in each of ouropen communities our inventory turnover, and thus our interest coverage,declined in fiscal ’07. We’re working to bring our inventory investment intoalignment with our lower revenues and profits so that our interest coveragebegins to improve and our ratio of debt EBIDTA returns to a healthier level. Although EBIDTA fell substantially we generated $376 millionof cash flow in the fourth quarter and we used the cash we generated to reduceour debt. We generated this cash flow primarily by reducing our inventories.This is also how we will continue to generate cash going forward; by reducinginventories which occurs as we deliver significantly more lots with homes onthem for cash than the number of new lots we’re purchasing. We ended the year with $207 million outstanding on our $1.5billion unsecured revolving line of credit. Our borrowing based excess improvedover $200 million at year end from approximately $132 million at the end of thethird quarter. Remember that this is not an absolute limit because theborrowing base would grow if we borrowed more funds and invested dollars inqualified assets. A breakout of the qualified inventory assets in our borrowingbase on October 31st is shown on slide 17. One last comment before I turn it back to Ara. I want tomake it clear that we have a covenant in our public debt indentures that nowprevents us from paying dividends on our 140 million non-cumulative perpetualpreferred stocks. So we’re not expecting to pay those dividends during fiscal’08. Now to Ara for some closing comments. Ara K. Hovnanian: Thanks, Larry. I’d like to step back for a moment to give alittle bit of long-term perspective because it’s easy to get caught up in thethroes of this current market downturn, which no doubt feels very negativeright now. I’d like to look at the longer-term history of our industry. If youturn to slide 18 it shows you housing starts over the last 30 years in thiscountry. Obviously we’re one of the quintessential cyclical industries. Alittle like the autos, but we’re not threatened by imports. There have been a lot of ups and downs in our industry. I’veput in here in blue the most recent data for ’07. That’s annualized housingstarts as of November, which were down to just over 1.1 million starts peryear. These numbers just came out yesterday and we’re at a 16-year low. As youcan see, ’07 is clearly a very sharp correction, although not unprecedented asyou look at past cycles. If you look at the arrows indicating the downwardcorrections you’ll see that 1975 and ’81 both had downturns that were also verysharp and quite similar in degree of downturn. I suppose the only good thing Ican say about the sharp downturn in the current correction is in at least thosetwo cycles where we saw a sharp downturn it was followed by a very sharpupturn. After under producing longer-term demand for long enough the marketdoes tend to correct sharply. At least, it has in the past. The last down turn in the late ‘80s and early ‘90s was quitedifferent in nature from this one and one that was much more gradual inreductions year by year, never really having a sharp correction in any oneyear. The corollary is that we also had a gradual recovery, never having asharp upturn in any year. The years shown with a gray over hatch are there just togive you a little more perspective because they show when we had nationaleconomic recessions. As you can see, all three of the last three majorcorrections had an economic recession at the same time. Thus we have currently someunusual times for the housing market. The lack of a recession should create alittle easier environment for an eventual recovery than we’ve had in the lastcorrections. And by the way, Hovnanian Enterprises has been here for allof these corrections, plus a few more as we’ve steered our way through theseprior downturns. My father founded the company back in 1959, so we’re quitefamiliar with these patterns and what needs to be done during the difficulthousing markets. Each housing correction is a little different, but whathomebuilders have to do is essentially the same. An additional point of interest, having steered through abunch of these, you see the orange bar on the top of the chart? This shows whatmortgage rates were like at each of those cycles, all certainly verychallenging. Nineteen-eighty-one, though stands out as perhaps the mostchallenging from the rate perspective and the mortgage perspective. For those of you that were in the housing market at thetime, the 30-year fixed-rate mortgages were over 18%. You can imagine what wehad to deal with then: an economic recession and 18% 30-year fixed-ratemortgages. Today we are worried about the marginal credit households qualifyingfor a home because of the challenges in sub-prime and Alt-A (sic). In 1981 wedidn’t even have an option of sub-primes or Alt-As. Everyone had qualificationproblems because the mortgage rates jumped to over 18% and people were losingtheir jobs because of a recession. There was a lot of doom and gloom everywherethen as there is in every housing cycle. Inventories were also at high levelsthen. Amazingly, the markets eventually cleared and in 1983, just a shortperiod after the bottom, the market saw a 70% increase in housing starts. One last bit of information on this particular chart: thedashed horizontal line shows you average housing starts during these threedecades, nearly 1.6 million average annual starts. Unfortunately, the industryhas tended to overproduce and under produce that long-term average. If you go to slide 19 the good news is from the long-termperspective demographics are getting stronger. Almost every demographer andactuarialist is projecting greater household formation and creation over thenext two decades than what we’ve experienced recently. Top row shows the key driver of housing and that’s householdgrowth. The first three columns you see what the history has been over the lastthree decades. The most recent decade we had about $1.2 million net newhouseholds created every single year. The next three columns, or the lastthree, show projections and included Moody’s projections and the Harvest JointCentre for Housing projections. That projection, going forward, is about 1.4million to 1.5 million households being created per year. This translates togreater household demand going forward than we have had recently. On slide 20 you see new home inventories courtesy of ZelmanAssociates, hot off the press. While it is clearly at very high levels, it issimilar to what the market has experienced in virtually every housingcorrection. We are not in uncharted waters. We have seen the number of monthssupply of new homes at or higher than these levels in the past. We are experienced operators and we’ve been around as acompany for almost 50 years. We’ve been through many downturns. We were muchsmaller then, less diversified, far fewer products and price points, and in farfewer geographies. We’ve successfully managed through these difficult times andwe’re taking the steps necessary to ensure that we will be in the best possibleposition when the inevitable recovery takes place. With that I conclude my comments for today and will bepleased to open up the floor for questions.

(Operator Instructions) Your first question is from the lineof Stephen Kim of Citigroup. Please proceed. Stephen Kim -Citigroup: Thanks, guys. You covered a lot of ground. It’s hard to knowexactly where to begin. Let me start with the commentary regarding your grossmargin. I think you had indicated, Larry, that the Fort Myers effect with acouple of quarters worth of zero gross margin, would it be fair for us toassume that the remainder of your business outside of Fort Myers is probablystill likely to generate a low double-digit gross margin? J. Larry Sorsby: Yes. I mean, we didn’t have that many deliveries in thefourth quarter from Fort Myers, so the fourth quarter gross margin of a littleover 10% wasn’t really impacted by Fort Myers. Ara K. Hovnanian: Steve, just to be clear, what Larry was trying to explain isthat we expect in our first quarter we’ll be delivering those margins, thosehomes in Fort Myers and that’s where you’ll see the additional effect for thatquarter of those homes. Stephen Kim -Citigroup: Okay. So yeah, that’s going to be a pretty huge effect ifit’s all happening in one quarter. Okay, so that’s important. And I’ll leavethe FAS ruling for someone else. Let me ask you about your joint ventures. You gave some, Ithink you gave some commentary about the debt that resides at the jointventure. I was curious if you could give us a sense for what your proportion atshare, you know, let’s just use a completely draconian assumption instead ofassumptions and say that worst case scenario you’ve got to shoulder a bunch ofdebt related to the joint ventures. Could you quantify for us what you thinkthat might be and walk us through the relevant parts? Ara K. Hovnanian: I guess I’m a little confused by your question. I mean, thedebt is truly non-recourse. They can’t put the debt back to us. We have nottaken the same approach some of our peers have with respect to providingmaintenance and other types of financial guarantees that would prevent thebanks to come back. So I don’t really understand the question. Stephen Kim -Citigroup: Okay. So you basically say that there are no sort of waysthat they can come back to you. Your proportionate share you would say isbasically zero in terms of repayment guarantees, contingent payment obligationsand all the rest of it. That really doesn’t relate to you in your jointventures. Ara K. Hovnanian: Correct. That’s correct. And Steve, just to emphasize, thatwas specifically our strategy in going with low-leveraged joint ventures. Ourtarget was to be under 50% and, as our chart indicates, we’re at about 45% atthe end of the last quarter. That’s why we were able to attain those kind ofterms. Stephen Kim -Citigroup: Perfect. Thanks very much.

Your next question comes from the line of Carl Reichardt withWachovia Securities. Please proceed. Carl Reichardt –Wachovia Securities: Good morning, guys. How are you? Ara K. Hovnanian: Great. J. Larry Sorsby: Good morning. Carl Reichardt –Wachovia Securities: Larry, I hate to ask you to do this. I’m a little confusedabout the comment that I think, Ara, actually you made earlier about furtherimpairments due to shift to cost from communities that you’re walking away fromwhere you’ve got costs allocated to lots that you aren’t going to build on now.Can you quantify that numerically for us, I guess for the year? And maybeexplain it in a way that allows me to get to kind of a number that I should bethinking about as things go forward? Ara K. Hovnanian: Yeah. Sorry for the confusion. Okay. When you walk away froman option the easy and identifiable costs to write off are the option deposits.And that’s pretty straight forward. What gets more complex is when you havecommon costs in an ongoing community and you’re keeping some lots but walkingaway from other lots. Essentially what happens is rather than record someproportionate share of those common costs in the write-off of options, insteadyou re-allocate those common costs to the land that you still own in the earlysections. And then once you have those additional costs you do an impairmentcalculation and if it impairs, triggers an impairment then you have additionalcosts that indirectly are related to the decision to walk away. I believe thosewere $77 million in our recent quarter. Carl Reichardt – WachoviaSecurities: Okay. So it’s an increase in the costs side of the forwardprojection on the impairment because you have to re-allocate to what you stillown. Ara K. Hovnanian: That’s correct. Carl Reichardt –Wachovia Securities: Okay. I just want to make sure. The $77 million. Okay. Mysecond and final question is, bigger picture, you mentioned that you were asmaller company in past cycles and fewer markets. As you look at your footprinttoday and recognizing that some of your lot count has shrunk in some of themarkets you’ve entered more recently. Do you anticipate significantly shrinkingyour geographic footprint or even if you run out of lots in a market likeCalifornia or elsewhere staying in those markets and continuing to re-invest inthere in those places? Ara K. Hovnanian: Yes. Our current plan is not to shrink our footprint, butshrink the size of the foot that’s in that footprint, if you will. We just planto pare down our inventories in virtually all of our markets. Carl Reichardt – WachoviaSecurities: Okay. Ara K. Hovnanian: And use other strategies to mitigate risk that being in someof those markets that takes more dollars to play, like in California. Sothere’s different strategies that we are contemplating once the market turns toreduce our exposure, Carl. Carl Reichardt –Wachovia Securities: Okay. I appreciate that, guys. Thanks much.

Your next question comes from the line of Michael Rehautwith JP Morgan. Please proceed. Michael Rehaut – JPMorgan Securities Inc.: Hi. Thanks. Good morning, everyone. First question is oncash flow. I was wondering if you could share with us some of the drivers ofbeing able to exceed. In the fourth quarter your, I believe it was, guidance of175 to 250 and likewise why it seems like your, you know, if this has anythingto do with seemingly lowering the goal of ’08 where you had previously said$100 million to $400 million and now you’re just saying over $100 million. Ifyou could give us insight into both, you know, 4Q drivers and how that’saffecting your outlook for ’08. And then I have a second question. Ara K. Hovnanian: Sure. I’ll try and begin. Some of the drivers, obviouslymaking the tough decisions of walking away from some more land andrenegotiating the takedown schedules of some of the ones that we continued withcertainly helped us exceed our projections. Being even more strict with landdevelopment was certainly one of the factors. And also, as you saw, we madegood progress in reducing our specs. That was one of the factors as well thathelped increase our cash flow. J. Larry Sorsby: Going forward into ’08, keep in mind that I believe that wemade the $100 million to $400 million project for ’08 at least two or threequarters ago. The market has weakened in the intervening time period. So eventhough we are taking additional steps that Ara just outlined to control kind ofthe outflow of cash, deliveries have not been as strong as we would haveotherwise expected, margins have been a little bit lower than we would have otherwiseexpected, and therefore we’re moderating our position. We’re not saying wecan’t get to $400 million. We don’t know exactly where we’re going to end up atthis point, but we’re more confident saying in excess of $100 million. Ara K. Hovnanian: Basically the issue, say, is similar to trying to projectearnings and revenues. Everyone in our industry has been reluctant to do that.Clearly, and particularly as you get further out, cash flow is very tied tothat. So we’re trying to be on the safer side of our guidance. Michael Rehaut – JPMorgan Securities Inc.: Okay. Thank you. The second question is just related to someof your comments about month-to-month trends. Obviously you’ve had a lot ofsuccess getting units in or orders in the door for the Sale of the Century. Itseemed like perhaps that could have contributed to kind of an opposite periodwhere in October and November you had an extreme low. Then more recently younoted a pick-up in December. I was wondering if you could give us some perspectivein terms of, you know, is this volatility in some ways related to or begun bythe Sale of the Century? How would you characterize December relative toOctober and November and relative to September? How are we to think about whatperhaps has spurred some of the December pick-up, perhaps from incentives? Ifyou could just give some background on that. Ara K. Hovnanian: Well, first, yes, undoubtedly our national sales promotiondid have an effect on sales in the subsequent weeks. But thus far what we’re seeingin December is not just relative to that post-sale slow down. What we have beensaying for a while is that the psychology is such an important part of what’sgoing on in the marketplace. Again, compared to other cycles, interest rates are at recordlows. Mortgage rates have actually dropped; 30-year mortgage rates haveactually dropped in the last month for a conventional product, which is themajority of our housing product. Prices have been dropping for a while so thathousing is definitely much more affordable. And at this stage job growth iscontinuing. So what we’ve really been battling is just a lot of negativepsychology. Now, I’m not saying that psychology completely changed andhomebuyers are doing cartwheels or potential homebuyers are doing cartwheelsdown the sidewalk, but what did change in December is at least some glimmer ofpositive news with both our President and the Treasury Secretary announcingsome plan for the sub-prime recess, which have really been problematic and ofconcern for people. Keep in mind, sub-primes I think in the total amount ofoutstanding mortgages are about 7% of the total mortgages outstanding and, infact, I think the adjustable sub-primes are an even smaller percentage. Butit’s been getting a huge amount of press. So some good news about the recesshas definitely helped. And then on top of that, if you remember the feds triedto send earlier a message to the market to not anticipate rates and then at thebeginning of December it changes that message and in fact lowered rates. All of that, you know, while not solving all of theproblems, were steps that helped create a little more positive consumersentiment, a little better confidence, and I believe that is part of whathelped improve the sales environment in the most recent weeks. Michael Rehaut – JPMorgan Securities Inc.: And was that seen across the board nationally or moreprevalent in certain regions? Ara K. Hovnanian: We did not see it related to any one market. It has beenpretty uniform in the last three weeks. Michael Rehaut – JPMorgan Securities Inc.: And degree of magnitude in terms of improvement versusNovember? Ara K. Hovnanian: Substantial. It was almost like somebody took the faucetsthat had been slown to a trickle and opened it to kind of a medium-high kind oflevel. I mean, December’s a tough market to judge anyway, as you know, becauseit’s a seasonal slow time of the year. But from being well below ourexpectations, every week in October, every week in November, we’re now at or aboveexpectations to date in December. Michael Rehaut – JPMorgan Securities Inc.: Okay. One last question and then I’ll move on. The grossmargins, could you just for the fourth quarter, was there any benefit in thatfrom prior impairments in previous quarters? Ara K. Hovnanian: Sure, we had a little benefit. We’ll have a benefit, a bigbenefit in ’08, obviously, as well, in every quarter given the large amount ofimpairments that we have taken in the last two years. Michael Rehaut – JPMorgan Securities Inc.: Larry, do you have a sense of the dollar impact? J. Larry Sorsby: I think the team’s looking for it. What was it?

It was $88 million, Mike. Michael Rehaut – JPMorgan Securities Inc.: Eighty-eight million benefit from, in the gross margin fromimpairments from prior quarters. J. Larry Sorsby: Yes. Michael Rehaut – JPMorgan Securities Inc.: Okay. Thank you. J. Larry Sorsby: Mike, one point in that. Some of that is in the land saleclose of sales as well. It’s not just home building cost of sales. Michael Rehaut – JPMorgan Securities Inc.: Okay. If it’s possible to get that to me later the breakdownor if you have it now, that’d be great. Ara K. Hovnanian: We don’t have it now. We’ll try and get back to you. Michael Rehaut – JPMorgan Securities Inc.: All right. Thank you.

Your next question comes from the line of David Goldbergwith UBS. Please proceed. David Goldberg – UBS: Thanks. Good morning. Larry, I was wondering if you couldgive us an idea of how you got to the $216 million for the FAS-109 charge andwhat gives you the confidence of the deferred-tax assets that are still on thebalance sheet are going to be recognized? J. Larry Sorsby: I want to take the second half of that question and I’m goingto let Brad O’Connor answer the first half. The reason that we’re confidentthat we’ll be able to use them is, you know, we’ve been in business for almost50 years. We’ve been through these down cycles. We are going to return toprofitability just as I believe virtually all of the other home builders willas well. And as we return to profitability we will be able to take a taxbenefit every time we earn a dollar. David Goldberg – UBS: But how does that differ from -- J. Larry Sorsby: We return to a three-year, or when we get out of athree-year accumulative loss we’ll be able to reverse the entire allowance in asingle shot. So the only way you wouldn’t be able to realize the benefit is ifyou never make money again. David Goldberg – UBS: I guess what I’m trying to understand is the differencebetween what was taken in the reserve and what’s still on the balance sheet as non-reserved. Brad O’Connor: Let me try to answer that part of the question. The way wedetermine how much we needed to reserve is we looked at what deferred-taxassets would actually turn in ’08, which we would be allowed to carry back fortwo years to 2006 when we had income. So those we know we will use. As well as,we have some amount of deferred-tax liabilities that will turn in the timeframeof the 20-year period we’re talking about which will also be able to be usedagainst the assets. So the amount that’s remaining in the balance sheet is whatwill turn in ’08 and be used against, be carried back to ‘06s income, as wellas the small amount of deferred-tax liabilities that will turn during the timeframe of the assets and be used against those assets. So that’s how we are leftwith what we’re left with on the balance sheet. David Goldberg – UBS: Perfect. And if I could get a follow up on that, I guess myquestion would be about the three-year for accumulative loss situation you guysjudged you were in. What kind of assumptions are you putting into your modelsto get to that level? Does it include impairments? Ara K. Hovnanian: Well, again, to emphasize, we are not in accumulative lossposition now. Which was what we initially thought was the key test. We are notin accumulative loss position. The issue is as you look forward, which has beenclarified in an interpretation, and you drop the highly profitable fiscal ’05where we had pre-tax earnings of almost $800 million. When you drop that, ifyou have ’08, which would be nowhere near that level of profitability, that’swhat could drive you into accumulative loss position if you look forward. J. Larry Sorsby: David, again, I’m going to talk about it from the industry’sperspective rather than Hovnanian specifically. I believe virtually theindustry as a whole had a grand slam year in ’05. If you drop that foreverybody then you have ’06 which was kind of a so-so year for the industry,’07 which was a bad year for the industry, and add a projection for ’08, evenif you project modest to reasonable profitability virtually the entire industryis going to be in a three-year accumulative loss. David Goldberg – UBS: I got you. So it’s not an ’07-’08-’09 calculation, it’s an’06-’07-’08 calculation. Ara K. Hovnanian: Yes. J. Larry Sorsby: That’s correct. David Goldberg – UBS: That’s right. Got it. If I could sneak one more in. Ara, youwere talking about the macro-economic conditions and the idea that existinghome sales prices need to come down to become more in line where new home saleprice declines, new home sale prices are now. Do you think that if we start tosee more pressure on existing home sale prices that’s going to cause anotherround of decline in new home sale prices again even though they’ll remain outof equilibrium? Ara K. Hovnanian: I don’t think so because traditionally, I mean, look,there’s always pressure in the markets and we’ll see what the future holds, buttraditionally new home prices sell at a premium to a comparable existing home.It is a very odd scenario right now where existing home buyers, many of themhave just held on to higher prices. That’s why you see this inventory rising inthe new homes and yet new homebuilders’ inventories are generally starting todrop. So I think it’s got to get back to the normal balance that’s been inplace for decades, which is that a comparable existing house should sell at adiscount to a comparable new house. David Goldberg – UBS: Okay. Thanks.

Your next question comes from the line of Andrew Brausa withBanc of America Securities. Please proceed. Andrew Brausa – Bancof America Securities: Hi, guys. I wanted to just address quickly, in yournegotiations with your lenders on your amendment to your credit facility, howshould we think about the potential for layering, meaning that collateral issomething that’s at the table for negotiation in providing your bank lenders oris everything under negotiation and are all options opened? Have you guys thoughtabout that? Can you frame that a little bit for us, being that we are on thepublic side of things? Ara K. Hovnanian: Sure. Well, I think at this point, there are many things onthe table, including securitization on the revolving credit facility. Reallyit’s just a matter of what the entire package looks like. Obviously we are notthe first to seek amendments. In fact, we are one of the few that hasn’t had tohave an amendment yet, so we’re about to go through that process. But I suspect like everyone, all things are on the table andwe have to look at the total package to determine what makes the most sense. Andrew Brausa - Bancof America Securities: Okay, and I guess the second question I have is with regardto draw on the revolving facility. In the first half of last year, you drewabout $400 million in the first two quarters of the fiscal year on the facilityand this year, you expect a modest draw up from 207 in the fourth quarter. Isit possible for you to maybe drill down that a little bit and give us kind of arange that modest would quantify? J. Larry Sorsby: No. Ara K. Hovnanian: No, it’s -- frankly, we’ve had a lot of moving parts. Rightnow, it’s a little hard to be really precise so we suspect our increases willbe modest relative to what they were. J. Larry Sorsby: But Andrew, it’s also why we don’t give quarterly cash flowprojections. I mean, they go hand in hand, and if you look at the two prioryear pattern, which we showed you on the chart, that gives you some indicationof the way our sort of normal seasonality. Two years ago, we were also growing still and growing ourinventories in some of those early quarters. We don’t expect to be doing that.We do just expect a normal seasonal pattern so it’s very challenging to projecton a month-by-month and quarter-by-quarter basis, which is why we are hesitantto do that. We think by the end of next year, we’ll have generatedpositive cash flow and paid down the revolver and debt from where we are today.

Your next question comes from the line of Nishu Sood with Deutsche Bank. Please proceed. NishuSood - Deutsche Bank: Thanks. The first question I wanted to ask was on yourpricing and incentive trends and the effect that it’s having on your grossmargins. Now the steep drop in your gross margins in the last quarter wouldtell me that you were being pretty aggressive in terms of pricing andincentives in late spring and the summer. Now, heading obviously into the dealof the century, Ara, you had said previously that that was more just collectinga lot of promotions that had been out there already. So my question is I just wanted to get an update on that --does the deal of the century pricing mean that we should expect furtherpressure on gross margins in coming quarters? And also, what has happened sincethe deal of the century? Ara K. Hovnanian: Well, I think you are cleverly trying to get us to projectour gross margins, which we are trying to stay away from. I’d say gross margins in general clearly were affected bydeal of the century, but also to a greater extent have been affected by themarket in general. I don’t see that there’s been a big change in our incentivesor pricing in the most recent months. NishuSood - Deutsche Bank: How about this -- what has happened in the communities,let’s say, where the deal of the century was very successful after that salewas over? I mean, did you pull the promotions that were in place or have you kept them in place or have you increasedthem? Ara K. Hovnanian: In many instances where sales were very good, we pulled thepromotion and went back to either pre promotion pricing or something close tothat. And then in other cases where sales did not do well, as well as we hadhoped in deal of the century, something very close to the deal of the centurymight still be in place. So it’s varied dramatically. Frankly, again this is generally a very difficult time toreally gauge what’s going on in the marketplace. As you know, everybody is morefocused on the holidays and New Year’s, so we really can’t get a goodindication of what’s going on until after Super Bowl. NishuSood - Deutsche Bank: Okay, great. And my second question on your inventories, youdid a great job of giving us a lot of details on the amount of lots you will betaking down through options, also on the spec part of the inventory. So thethird piece though, I just wanted to get a little bit more detail, the landunder development which you described. Obviously you are deferring a lot of theinfrastructure and development costs that you’d normally be putting in. And Ithink the amount from the slide was about $1.6 billion or so of -- I’m sorry,$1.8 billion or so I think of land under development. I just wanted to see if Icould get a sense of if I wanted to model what that would be on a finishedbasis, how much would I add to that? I’m just looking for an order ofmagnitude. Would I add 25% to that, 50% to that? Ara K. Hovnanian: It’s just not something -- it’s just not a metric that wetrack in that way, so I’d love to give you that info because we love lots ofdata but that’s just not a way that we track it. NishuSood - Deutsche Bank: Okay. Thanks a lot.

Your next question comes from the line of Dan Oppenheim withBanc of America Securities. Please proceed. Mike Wood - Banc ofAmerica Securities: This is Mike Wood. Can you give us the dollar amountinvested in unsold inventory currently, and also how much you think you canwork that down next year? J. Larry Sorsby: We show you the total of sold and unsold loans on that samechart of $1.4 billion. Ara K. Hovnanian: He’s looking for the unsold. Dan Oppenheim - Bancof America Securities: Yeah. Ara K. Hovnanian: Yeah, we don’t break that out. In general, just a number,I’d suspect that unsold will start to trend down a little bit. Keep in mindwhat we track, and it’s a little different than some builders, we track a homeas soon as it’s started, not just finished unsold homes. So frankly, in a lotof the cases, we hope to get a sale before the house is even completed. In today’s environment, while we’d love to bring unsoldhomes down to zero, it is prudent to have some unsold homes on hand at each community.We are running about five right now throughout the country. And the reason for that more than ever in the past is thatthere are many consumers that don’t want to sign a contract to build a newhouse until they have sold their existing house. The problem is that oncethey’ve sold their existing house, they typically have to move in 45 days, 30or 45 days, and you can’t build a house that rapidly. So it is important tohave some level of specs a little higher than we generally have targeted. Having said that, specs because of accidental specs, if youwill, people that canceled in their contracts, did creep a little higher so westill believe we’ve got some opportunity to reduce our general spec level. Wejust haven’t quantified what that would mean in dollars and cents. Dan Oppenheim - Bancof America Securities: Okay, and we’ve seen some large land sales from some of thelarge competitors out there. How are you thinking about the trade-off ofpotentially selling land to pad cash flow and work down your land inventoryversus needing to put out more cash for construction in order to work throughland inventory that way? Ara K. Hovnanian: Well, we’ve done a number of land sales. We certainlyfollowed what’s gone on in the industry and the very interesting transactionwith Lennar and Morgan Stanley. We are very familiar with joint ventures, as wehave done a few. You know, as I said earlier in regard to the credit facility,the same would be here. We’re looking at all options that make sense for our companygoing forward. We don’t have any definitive plans but it certainly is one ofmany intriguing options in the environment today. Dan Oppenheim - Bancof America Securities: Thanks.

Your next question comes from the line of Wayne Coopermanwith Cobalt Capital. Please proceed. Wayne Cooperman -Cobalt Capital: You wrote off a lot of stuff this quarter and you still havea $19 book value. I was wondering if you could actually opine what I shouldtake that to mean. I mean, does that imply that you should earn some kind ofreturn on that $19 book value, or you could sell all the rest of your assetsand we could get $19? Because your stock’s at $7 and something doesn’t makesense. J. Larry Sorsby: The stock is too cheap. Wayne Cooperman -Cobalt Capital: Seriously, though, what does $19 mean to me? I mean, are wegoing to earn a 15% return on that $19 book value? Are we going to keep sellingassets that are now at the same price we’ve written them down to? Ara K. Hovnanian: Well, as I am sure you are well aware, Wall Street has notbeen kind to homebuilders. Many are selling below book value and -- Wayne Cooperman -Cobalt Capital: [They believe] in the book value. You guys just wrote off alot of stuff. The $19 is now your kind of -- what you would think accurate bookvalue, or at least that’s part of the question. J. Larry Sorsby: What you are really asking us to do is make a projection andas I think we’ve made it pretty clear, we are just not in a position that weare going to make a projection. Wayne Cooperman -Cobalt Capital: I don’t even want a projection. I just wonder if you couldjust talk about what you guys see as the -- what’s embedded in that? Do youthink you could sell your assets for what you’ve written them down to or do youthink they are written to a level where you actually earn a return on them? Ara K. Hovnanian: If you are planning on a 15% return on $20 of book value, Iwouldn’t bank on that at this moment. Fifteen-percent ROE is for normal times.We are not in normal times, so I say if that’s your benchmark, I wouldn’t counton that for the short term. J. Larry Sorsby: Yeah, when the market recovers, which it ultimately will do,we’ll get back to earning those kinds of returns. But when we are still in acyclical correction or downturn, it’s difficult to approach a 15% return andthat’s about all we can say at this point. Ara K. Hovnanian: Yeah, I mean obviously when the markets were better, we wereearning in excess of 40% returns on our after tax, on our beginning equity.Fifteen-percent we kind of consider a more normalized part of the market. Andthen when you are in a trough of the market, you’d expect to earn below thatfor sure. Wayne Cooperman -Cobalt Capital: The other -- I mean, would you guys expect to sell off moreraw land or assets and get close to your book value and pay down debt that way? Ara K. Hovnanian: No. I think generally speaking, the most logical courseright now is to continue building and selling homes. We think that maximizes valueand cash flow. As opportunities arise on land sales or potential jointventures, we are certainly going to explore those as well. The main focus andcertainly the main thrust is continuing to build through the housing and wethink that maximizes the recoverable dollars that we’ve got invested. Wayne Cooperman -Cobalt Capital: Okay, thank you.

Your next question comes from the line of Susan Berliner with Bear Stearns. Please proceed. SusanBerliner - Bear Stearns: I just wanted to make sure I was clear. The $100 million,does that include any pay down on the bank line for next year? J. Larry Sorsby: Well, we’re not talking about exactly what we are doing withthe $100 million. We are just saying we can expect to generate more than $100million of cash flow. SusanBerliner - Bear Stearns: So that does not incorporate any additional pay down on thebank line? J. Larry Sorsby: We’re not saying we’re going to have excess cash of $100million after paying down some amount of debt, if that’s what your question is.We’re just saying that we are going to generate in excess of $100 million ofcash flow and then we’ll determine how to best use it. Kevin C. Hake: Maybe you’re confused about what ourdefinition of cash flow is. We were careful about that when we started talkingabout cash flow and there’s actually a pretty clear description as a footnoteat the end of our press release about non-GAAP financial measures, andessentially if you are looking for what that number is, you can get it off ofour cash flow statement, which we’ll be filing shortly for the year and for thequarter. But it is essentially equal to whatour cash flow from operating activities plus our cash flow from investingactivities, but we have a funny category on there called changes in mortgagenotes receivable at our mortgage company, so it excludes that. So back to your question, it’s priorto any changes in debt. So we are going to generated $100 million or more nextyear prior to any changes in debt. Maybe that answers it for you. SusanBerliner - Bear Stearns: That helps. And can you quantify atall, I think last quarter you kind of quantified how much you would spend onland. Can you update us at all on that going forward? Kevin C. Hake: I don’t think we did give that andit’s just something we don’t generally look at in terms of -- we look atoverall changes in projected inventories really more than the sub-components ofwhat the money’s being spent on. SusanBerliner - Bear Stearns: Kevin, can you describe that at all, what your change ininventory would be going forward? Do you see that accelerating? Kevin C. Hake: Well, we’re going to generate $100 million of cash flow nextyear and very little of that potentially from EBITDA, so most of that is goingto be from changes in the balance sheet, primarily inventory. SusanBerliner - Bear Stearns: Okay. Thank you.

Your next question comes from the line of Larry Taylor.Please proceed. Larry Taylor - CreditSuisse: Thank you. I wonder if we can sort of follow-up; you hadgiven us an $88 million figure as the contribution from write-downs on landunder product you delivered in the fourth quarter. Roughly what percentage ofthe lots that were delivered in the fourth quarter had write-downs in them? Ara K. Hovnanian: We don’t track that number. Larry Taylor - CreditSuisse: I mean as a ballpark, is it half, is it -- I mean, I’m notasking for 10 decimal places but just a rough -- is it 90%, is it -- J. Larry Sorsby: I mean, it’s just not something we track, Larry. We justdon’t have it. Larry Taylor - CreditSuisse: Do you have any sense in terms of subsequent to thewrite-downs that you’ve taken, what that number might look like going forward? Ara K. Hovnanian: We’re just not projecting that along with any of ourprojections, Larry. I don’t think any builder is. Kevin C. Hake: I think you gave some color on a number of communitieswritten down and those that we haven’t. We just don’t track where ourdeliveries are coming out of which community, impairments or not impaired. Larry Taylor - CreditSuisse: Okay. Thank you very much.

Your next question comes from the line of Alex Barron withAgency Trading Group. Please proceed. Alex Barron - AgencyTrading Group: Thanks. I hope you can hear me. I wanted to ask about thedeal of the century. I was under the impression that most of the homes thatparticipated in that program were basically finished specs, so I’m kind of alittle surprised why only 450 or so have been delivered so far. Can you commenton that? Ara K. Hovnanian: Sure. Actually, it was interesting that -- and we hadannounced this earlier -- that while we thought the big focus would be on spec,that in fact we sold a lot of new orders as well. So in fact I think we announcedit was less than 50% of our sales were spec. So many of our homes are currentlybeing built from that for our customers. J. Larry Sorsby: We announced that publicly, Alex. I’m not sure why you cameto the conclusion that most if not all of them were specs. Alex Barron - AgencyTrading Group: Okay. I guess it was just from some company, some communityvisits I made that that was my understanding, so maybe I got it wrong. Ara K. Hovnanian: It certainly varied from one community to the other and somecommunities definitely emphasized specs more. Others targeted specific lotsthat they thought were more challenging, so the actual selection varied greatlyfrom community to community. Alex Barron - AgencyTrading Group: I wanted to switch topics here a little bit. I understandthe FAS-109 and I’m sorry I’m not that familiar with this accountingpronouncement, but to understand the three year cumulative loss position, isthis on a pretax basis? Is it also on a last 12 months basis or do you only doit at the end of every fiscal year? J. Larry Sorsby: It’s a pretax basis and what we did, Alex, again just toclarify, is we looked as of the 36 months ended October 31st ’07, we determinedthat we were not in a three-year cumulative loss position. In spite of that,what we then did was drop off the 12 months ending October 31st ’05 andreplaced that highly profitable year with a reasonable projection of what ’08would be, which obviously will not look nearly as good as ’05. And when we dropoff ’05 and add ’08, it’s likely that we will be in a three-year cumulativeloss, in light of the loss we just posted for our ’07 year. Alex Barron - AgencyTrading Group: So basically that’s why in a sense you reversed what you hadbaked in before and then you took a new charge this quarter? J. Larry Sorsby: Ara didn’t mention that but it has nothing to do withFAS-109. That’s just in essence what’s kind of occurred. Alex Barron - AgencyTrading Group: Okay. You mentioned that some other builders might not, orsome other auditors might not interpret things the same way. Are you referringto that only Ernst & Young has a three-year cumulative loss interpretationor is that standard across the group? J. Larry Sorsby: I don’t want to speak for what the other auditors may or maynot do. We are aware that not all of the firms are interpreting or applyingFAS-109 in an identical manner, that Ian Wye has advised us to apply it andthat’s about all I’m going to say. Ara K. Hovnanian: FAS-109 does not go into the level of detail to tell youwhat three years you are supposed to look at, et cetera. It’s an -- J. Larry Sorsby: -- doesn’t even define three years. Ara K. Hovnanian: It’s an interpretation, so firms may interpret differently. Alex Barron - AgencyTrading Group: So what I’m saying is, is the three years something theyinvented or is that something -- J. Larry Sorsby: That’s their interpretation. Alex Barron - AgencyTrading Group: Okay. Ara K. Hovnanian: And frankly, I think the three years is probably common. Theissue is do you only use the current year and two backwards, or do you actuallyproject? And I think that’s where some of the variation may come. J. Larry Sorsby: And I think it’s also that even if you are determined to bein a three-year cumulative loss, regardless of whether it is historical threeyears or two years historical and one year prospectively, if a firm or acompany believe that they were going to be in a position of being able torecover and generate profits in the near-term years, which is an accountingterm, then even then certain firms may not advise clients that they need totake the charge. Alex Barron - AgencyTrading Group: Now, some people have been talking lately about taking taxcarry-backs, not carry-forwards, and being able to I guess collect some moneyfrom the government. You guys aren’t in a position to do that? Ara K. Hovnanian: We are. The issue is you can carry back to two years, sothat would be ’05 and ’06 for us for this current year, and we are doing thatand do get refunds. But the impairments we have, and particularly in some ofthe cases of the intangibles, they go beyond what you can currently deduct andreceive refunds for. Alex Barron - AgencyTrading Group: But since like ’05 is going to be behind us, does that mean-- is it pretty immaterial what you were able to get back or can you quantifythat? J. Larry Sorsby: Well, it was a material amount but we didn’t fully receive-- I mean, if we had done a transaction like Lennar did and sold a bunch ofassets at steep discounts right before the end of our fiscal year, we wouldhave gotten a much more material number and a refund than we are going to bereceiving now. There is nothing we can do now to go back and recover a cashrefund for the ’05 year because our -- that’s more than two years carry backnow because our ’07 year is now ended, so all we can do is focus on the ’06year and the ’06 year, we will get a refund of virtually 100% of the taxes thatwe paid in that year. Alex Barron - AgencyTrading Group: Okay. All right. Thanks, guys.

Your next question comes from the line of Jim Wilson withJMP Securities. Please proceed. Jim Wilson - JMPSecurities: Thanks. Two questions; one, Larry, I was wondering, theinventory item on the balance sheet of land and land options for futuredevelopment, it actually went up year over year and I was wondering if youcould explain a bit of the components, since I assume land options themselveswent down, but maybe I’m wrong. J. Larry Sorsby: Repeat the question again? Jim Wilson - JMPSecurities: Well, on the balance sheet, when you are on your assets andyour inventory, obviously your in-process inventory sold on some homes wentdown but your next item of land and land options held for future development orsale increased year over year and I was wondering sort of what the componentswere that drove that up, since I assume within it land options themselves indollars actually declined. J. Larry Sorsby: One of the primary reasons that went up was because we didhave properties that we called mothballed. Those communities went from beingunder development into being held for future sale. Jim Wilson - JMPSecurities: Is that a pretty material number? Is there any way ofdescribing what is actually -- is some of it just options -- J. Larry Sorsby: -- the number in the conference call, we gave you thenumbers on how much is invested in option deposits, which -- Jim Wilson - JMPSecurities: Okay. So that and so the difference -- that would be thedifference, okay. J. Larry Sorsby: Well, the difference is not all of it but most of that’s agood -- Jim Wilson - JMPSecurities: Okay, well, that will be fine. Okay, that’s fine. And thenthe other one then, I was just looking through cancellations and looking andnoticing the number on the sale of the century, obviously wasn’t too bad, like20%, 21%, but your total cancellations for the whole quarter were 40, so doingthe math right, that would imply an awfully high cancellation rate on thenon-sale of the century stuff. Is that about right? And any thoughts orcomments on that? J. Larry Sorsby: I think that’s factually correct and I think one of thereasons that that occurred was that we had people in our backlog that had beenpreviously approved for certain mortgage programs that subsequently became notavailable and therefore they couldn’t find alternatives they had qualified forand they cancelled, as well as people just getting nervous about what was goingon in the housing industry and deciding not to move forward with theirtransactions. Jim Wilson - JMPSecurities: Okay, any geographic concentration or anything in particularto color that further? J. Larry Sorsby: Well, I think that’s a fairly generic response that we arehearing pretty much everywhere in the country, other than -- well, even inTexas we had the people using Alt-A and sub-prime, so I think it’s fairlygeneric. Jim Wilson - JMPSecurities: Okay, makes sense. All right, thanks.

Your next question comes from the line of Stephen Kim withCitigroup. Stephen Kim -Citigroup: Thanks. I had a couple of follow-ups. Can you start with thecash flow? I just want to understand the impact of the Fort Myers deliveries onyour cash flow. For example, I think you indicated there was like almost $500million worth of -- yes, can you hear me? J. Larry Sorsby: Yeah, let me just short-circuit you there; because we’vealready got the cash because these people bought a lot from us and then wentand got a third party construction loan and as we built the house, we wereadvanced monies under their construction draws -- Stephen Kim -Citigroup: Got it. Construction -- J. Larry Sorsby: -- for the most part is going to be cash flow neutral. Stephen Kim -Citigroup: Got it. Forgot about that. Okay, yeah, because I was reallyconfused other than that. Okay, fine. That helps. And then the second thingrelates to the FAS rule. I just want to make sure that I’m clear. I meanobviously from my perspective, it seems a little silly but essentially, theonly way -- what this really seems to do is just create a deeper V in your GAAPearnings, whereas it doesn’t really seem to have much impact at all on yourcash. It doesn’t impair your ability to use deferred tax assets in terms ofreducing your cash tax payments going forward. What it does though is it sort of warps your reportedearnings going forward. Once you become profitable, you are just going to havean all-at-once recovery that is going to boost your book value in much the sameway that it just hit your book value, basically. J. Larry Sorsby: You are exactly 100% accurate. Stephen Kim -Citigroup: So by extension, if somebody wanted to let’s say evaluateyour company, your stock on a price-to-book basis, one would therefore thinkthat they should be taking your stated book value and perhaps assuming anongoing concern, be adding back this $3 of book value hit, theoretically aswell. J. Larry Sorsby: That would be a logical analysis and conclusion to gothrough and it also is perhaps highlights why some of the accounting firmsdon’t necessarily come to exactly the same conclusion because they are fearfulthat in future periods, if you take the charge now that perhaps future periodswill have higher than normal earnings and can be criticized for that. Stephen Kim -Citigroup: Yeah, no, absolutely. Okay, a couple of just housekeepingitems, if I could; there was -- you gave disclosure on the number of owned andoption lots. Can you give us a sense for what the JV lots balance stands at theend of the quarter? J. Larry Sorsby: Someone is looking that up. Stephen Kim -Citigroup: Okay, and then meanwhile, I had another housekeeping itemregarding your -- what is the purchase price of the options that you currentlyhold? I think it was $3 billion last quarter. I’m just trying to figure outroughly, do you know what it was this quarter? J. Larry Sorsby: I know we have that in the draft of the K, if anybody hasthat. We’ll look that up to and if we don’t get it in a couple of seconds,we’ll call you with both those numbers. Stephen Kim -Citigroup: Okay. That’s fine, and I guess just lastly, just aconceptual question as it relates to modeling; over the last couple of years,your conversion ratios, you know, the number of closings you generated in anyquarter relative to your backlog was surprisingly low -- not surprising, butsignificantly lower and that obviously related to this Fort Myers acquisitionyou had. And so therefore, as this fades in the rearview mirror, oneshould naturally expect that your conversion ratios would be higher, sort ofgoing back to -- J. Larry Sorsby: Higher than they’ve been in the last couple or threequarters, yes. Stephen Kim -Citigroup: Absolutely, which is -- okay, got it. Perfect. Thank youvery much and if I can get that data later. J. Larry Sorsby: We have one answer for you, Steve. Kevin C. Hake: The JV lots are about 4,300. Ara K. Hovnanian: And zero under option in the JVs. Stephen Kim -Citigroup: Zero under option in the -- okay, right. Got it. Okay. Allright. J. Larry Sorsby: We’ll get back to you with -- hold on. You think you haveoption dollars here and we can answer that? Is this just JV or is this -- Kevin C. Hake: No, it’s for everything. It’s $2.1 billion. Stephen Kim - Citigroup: Okay, great. Thank you very much.

Your next question comes from the line of Chris Melendezwith J.P. Morgan. Please proceed. Chris Melendez - J.P.Morgan: I have two questions; first, can you give me some color onthe negotiations with the banks for the amendment -- give me more comfort onwhy you feel like that you’ll be able to accomplish this in January? J. Larry Sorsby: Well, let me just -- first off, you all have been veryaccommodating in your own firm and approved our waiver very timely, so weappreciate that. Secondly, similar to all of our peers who have gone for atleast one amendment, most of them have, and some of them two and three times,we expect to have similar success as we negotiate our amendment going forward.But I’m not going to be able to give you any color on the negotiations beyondthat point. Chris Melendez - J.P.Morgan: Well, not on the negotiations, but is it a smaller syndicatethan normal? I think we’ve talked in the past in that you’re very close with threeor four banks and the line -- J. Larry Sorsby: No, it’s just -- we are not bifurcating our line at thispoint or anything like that. It’s the full bank group that we’re dealing with. Chris Melendez - J.P.Morgan: Okay, so can you give me a number on, you know, in theprocess -- J. Larry Sorsby: It’s like 26 banks or something like that. It’s all publiclyavailable and it’s not much different than any other big builders. Chris Melendez - J.P.Morgan: Okay, and then secondly is that with regard to inventoryreduction, you guys were talking about a -- in the fourth quarter about a 15%reduction, $597 million sequentially. What should I expect for next year, asort of similar number? J. Larry Sorsby: Repeat the question? Chris Melendez - J.P.Morgan: With regard to your inventory reduction in the fourthquarter, sequentially you produced a 15% reduction, 14.5% reduction of $597million. Can I expect a similar number to that for 2008? J. Larry Sorsby: I’m just not going to be making projections for you, so -- Kevin C. Hake: We answered earlier that we are going to generate $100million of cash flow for the year and we expect most of that likely to comethrough, or more, and there’s potential upside to that but it is largely goingto come through inventory reduction. So that’s the answer for the year. Chris Melendez - J.P.Morgan: Lastly, with the borrowing base, is that 200 now? J. Larry Sorsby: That’s what it was as of October 31, 2007, yes, that’s whatwe -- Chris Melendez - J.P.Morgan: Two-hundred million? Okay. Thanks.

Your next question comes from the line of Keith Wiley fromGoldman Sachs. Please proceed. Keith Wiley - GoldmanSachs: I’m just wondering if your cash flow projections areincorporating any significant land sales or if you are considering doing anyother means to help get the revolver down? J. Larry Sorsby: We’re just not going to give you the details of our cashflow projections. We are confident that we are going to be able to achieve inexcess of $100 million cash flow in the year. Keith Wiley - GoldmanSachs: Okay, and then one more, if you don’t mind; as far as yourwrite-downs that you’ve taken so far, most economists are expecting anadditional price decline in housing as a result of all the foreclosures thatare expected to come in 2008. Are you incorporating additional price declinesfor next year into your write-downs, or if there is additional price declines,should we expect possibly additional write-downs? Ara K. Hovnanian: Well, as I discussed in my portion, we think there is goingto be a lot more pressure on existing homes and foreclosures would be --competition for existing homes than there is on new home prices. New homeprices have already gone through a significant downward adjustment. Keith Wiley - GoldmanSachs: But you don’t think there will be much more additionaldownward price adjustment on -- J. Larry Sorsby: We really don’t know. We think that the new home buildersare way in front of the existing home sellers and have taken significantly morecuts than existing homes, and when you hear economists quote the Case-Shillerindex, that’s only on existing homes and we acknowledge that existing homeshaven’t come down much. But I think if you talk to just about any of the publicbuilders, they’ll tell you that they have significantly lowered prices. Are more price decreases going to be needed in the future?You know, we don’t have a crystal ball that answers that question. Kevin C. Hake: But Keith, with regard to the second part of your question,it wouldn’t matter what rosy scenario or what negative future view we had.We’ve been very clear how impairments work and how we go through that processand we think we are reasonably conservative in that process but we are usingwhat we believe are today’s conditions and projecting that for a fairly longperiod going out in the future. If it’s a very long life community, then we may go someimprovement in pace, generally not in pricing, out a couple of years. So theaccountants are very much -- work closely with us in terms of being veryconsistent in the approach we take and wouldn’t really want us to be assumingthere is going to be a further decline in pricing and things are going to getworse. Making our impairment number bigger would not be something auditorswould necessarily look favorable on, unless that was our standard approach. So if things deteriorate significantly further, I thinkwe’ve been clear on this comment in prior calls -- yes, if pricing does fallfurther, that could trigger further impairment. Keith Wiley - GoldmanSachs: Okay. Thank you.

Your next question is a follow-up from the line of MichaelRehaut with J.P. Morgan. Please proceed. Michael Rehaut - J.P.Morgan: Thanks. I know it’s getting a little long here in the toothwith this call but just a couple of quick questions. Can you give an idea ofthe geographic dispersion of the asset impairment charges? Ara K. Hovnanian: We’ll see if we happen to have that -- Kevin C. Hake: It will be in the 10-K that’s going to be filed in the nextfew days. I don’t know if we have it right here. J. Larry Sorsby: We didn’t give it here but I think we’ve given it in thepast through the last quarter and I think you are going to see a similarweighting towards California and the east. It will be in our K. Michael Rehaut - J.P.Morgan: Okay. Also, there was a question about land sales and cashflow and you declined to give an idea to what that could contribute to ’08 cashflow but in terms of 4Q and perhaps fiscal ’07, can you give us an idea whatland sales -- how much land sales contributed to those periods? J. Larry Sorsby: -- land sales. Michael Rehaut - J.P.Morgan: Sorry? Kevin C. Hake: Land sales I think in the fourth quarter were about $42million. That was the gross -- J. Larry Sorsby: Yeah, that was -- no, no, that’s revenues. [Multiple Speakers] Michael Rehaut - J.P.Morgan: Okay. And just lastly, you gave a breakdown of the lotsunder option and you have about 25,000 that are in Texas, North Carolina, D.C.and the Northeast. Is it safe to say that the remainder is in largelyCalifornia or Florida -- Ara K. Hovnanian: -- actually then there are about 4,200 in California,Florida, Minnesota, and Chicago. So then the rest are in other smaller markets-- South Carolina, Georgia, Ohio, Phoenix and a few others, little markets. Michael Rehaut - J.P.Morgan: Thanks very much.

Your next question comes from the line of Timothy Jones withWasserman and Associates. Please proceed. Timothy Jones -Wasserman & Associates: Good afternoon. Just a quick question on this Fort Myerssituation, I find it very intriguing. I don’t think in 40 years I’ve seensomething like this, but am I to understand that the people bought the lots andpaid you for that portion -- you’ve got that from a cash flow basis, and nowthat for the -- you got 80% of the construction loan, but since they arekeeping construction loans and not changing them to conventional loans, youlose the last 20%. Is that correct? J. Larry Sorsby: You basically have it right. They may have gotten aconstruction loan that has paid us for the lot rather than the customeractually paying us for the lot but I think the rest of it, you are pretty muchon track. Timothy Jones -Wasserman & Associates: So basically you are not getting that last 20%. Does thecustomers borrowing go down by that amount too, since he’s not in your profit? J. Larry Sorsby: I’m sorry, what did you say? Timothy Jones -Wasserman & Associates: In other words, you were supposed to get $100 but you got$80. The other $20 was your profit. Does the customer basically own instead of$100, does he own $80 to you for the construction loan? J. Larry Sorsby: Does he owe 80 on the construction loan? Timothy Jones -Wasserman & Associates: In other words, does he own 80% instead of the 100% becausepart of that was just what you were going to get as your profit. Kevin C. Hake: Tim, are you saying owe -- o-w-e -- or are you saying own,o-w-n? Timothy Jones -Wasserman & Associates: No, what they owed. What they had to owe if you wereborrowing $100 but $20 of that was going to you and you are not taking it now,do they actually owe $80 to the construction loan company? Kevin C. Hake: Yes, they have a construction loan to the bank and yoursimple analysis, roughly $80 is what they owe the bank. Timothy Jones -Wasserman & Associates: Okay, lastly, when you said zero gross margins, you weretalking just about these 1,400 homes in Fort Myers, hopefully. Kevin C. Hake: Correct. Timothy Jones -Wasserman & Associates: Okay. Thank you. Have a nice holiday.

Your next question comes from the line of Joel Locker withFBN Securities. Please proceed. Joel Locker - FBNSecurities: Just wanted to dig a little more in-depth on the grossmargin. I guess the sequential drop last quarter was about 45 basis points andthe two quarters before that was about 200 basis points. And this time it was570. And this is actually with an impairment reversal that would actually addto the gross margin, so I just wanted to see if there was maybe a higherpercentage of specs that were actually closed versus the prior quarter or whatwas behind just the massive fall-off on gross margins? J. Larry Sorsby: I think it’s an indication of the market conditions outthere and in general. Ara K. Hovnanian: Well, and earlier in the year, we had a lot more sales frombacklog that was obtained during better pricing times with higher margins, andas we delivered through the backlog it shifted to more new sales, which clearlyhave a lower margin. Joel Locker - FBNSecurities: And the people in backlog, just to keep them there, did youhave to give them another 5% or 6% from the actual contract price just to makesure they close or -- it’s just -- J. Larry Sorsby: I wouldn’t describe it as an additional 5% or 6%, but werewe negotiating with customers from time to time that were in our backlog asthey saw us adjust prices for people that haven’t yet bought, the answer isyes. We did make adjustments. Joel Locker - FBNSecurities: Right. It just seems, you know, you had a 230 bp reversal inimpairments in the third quarter and this quarter, it looks like maybe 400 or500, so that would actually add 2% or so to gross margin. So it technicallymight have dropped somewhere between 700 and 800 basis points sequentially,which just seems like something severe more than just continued deterioration. J. Larry Sorsby: I think it’s continued deterioration. Ara K. Hovnanian: Yeah. I think we’ve tried to describe it as best we could. Joel Locker - FBNSecurities: All right. Thanks a lot.

And there are no other questions at this time. I would liketo turn the call back over to Mr. Ara Hovnanian for closing remarks. Ara K. Hovnanian: Thank you very much. As I started out by saying, these areindeed challenging times but not times that are unfamiliar to our industry orour company. We will navigate through these difficult times as we have manytimes in our 50-year history and we look forward to more positive news onfuture conference calls in the future. Thank you very much.

This concludes our conference for today. Thank you forparticipating and have a nice day. All parties may now disconnect.