SECURITIES AND EXCHANGE COMMISSION
                                        
                             WASHINGTON, D. C. 20549
                                        
                                    FORM 10Q


[ X ]  Quarterly report pursuant to Section 13 or 15 (d) of the
       Securities Exchange Act of 1934

       For quarterly period ended APRIL 30, 1997  or

[   ]  Transition report pursuant to Section 13 or 15 (d) of the
       Securities Exchange Act of 1934

Commission file number 1-8551

Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)

Delaware                                        22-1851059
(State or other jurisdiction or                 (I.R.S. Employer
incorporation or organization)                  Identification No.)

l0 Highway 35, P.O. Box 500, Red Bank, N. J.  07701
(Address of principle executive offices)

908-747-7800
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year, if changed
since last report)

     Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Sections l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [ X ]    No [  ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.  14,516,977 Class A Common
Shares and 7,796,974 Class B Common Shares were outstanding as of June 6, 1997.
                          HOVNANIAN ENTERPRISES, INC.

                                   FORM 10Q

                                     INDEX

                                                              PAGE NUMBER

PART I.   Financial Information
     Item l.  Consolidated Financial Statements:

              Consolidated Balance Sheets at April 30,
                1997 (unaudited) and October 31, 1996              3

              Consolidated Statements of Income for the three
                and six months ended April 30, 1997 and 1996
                (unaudited)                                        5

              Consolidated Statements of Stockholders' Equity
                for the six months ended April 30, 1997
                (unaudited)                                        6

              Consolidated Statements of Cash Flows
                for the six months ended April 30, 1997
                and 1996 (unaudited)                               7

              Notes to Consolidated Financial
                Statements (unaudited)                             8

     Item 2.  Management's Discussion and Analysis
                of Financial Condition and Results
                of Operations                                      9

PART II.  Other Information

     Item 4.     Submission of Matters to a Vote of Security
                 Holders

     Item 6(a).  Exhibit 10(a) - Fourth Amendment to Credit
                 Agreement dated May 1997 among K. Hovnanian
                 Enterprises, Inc., Hovnanian Enterprises, Inc.,
                 Certain Subsidiaries Thereof, P N C Bank N.A.,
                 Chase Manhattan Bank, Corestates Bank N.A.,
                 NationsBank N.A., First National Bank of Boston,
                 Bank of America Illinois, First National Bank of
                 Chicago, Comerica Bank, and Credit Lyonnais.

     Item 6(b).  Exhibit 27 - Financial Data Schedules

     Item 6(c).  No reports on Form 8K have been filed during
                 the quarter for which this report is filed.

Signatures                                                        20

                  HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
April 30, October 31, ASSETS 1997 1996 ----------- ----------- Homebuilding: Cash and cash equivalents....................... $ 7,924 $ 16,535 ----------- ----------- Inventories - At cost, not in excess of fair value: Sold and unsold homes and lots under development.................................. 375,222 314,630 Land and land options held for future development or sale......................... 62,081 61,677 ----------- ----------- Total Inventories........................... 437,303 376,307 ----------- ----------- Receivables, deposits, and notes................ 32,712 26,442 ----------- ----------- Property, plant, and equipment - net............ 18,422 18,251 ----------- ----------- Prepaid expenses and other assets............... 44,043 31,939 ----------- ----------- Total Homebuilding.......................... 540,404 469,474 ----------- ----------- Financial Services: Cash and cash equivalents....................... 575 4,196 Mortgage loans held for sale.................... 20,232 57,812 Other assets.................................... 1,886 3,217 ----------- ----------- Total Financial Services.................... 22,693 65,225 ----------- ----------- Investment Properties: Held for sale: Rental property - net......................... 34,273 Land and improvements......................... 11,574 Other assets.................................. 413 Held for investment: Rental property - net......................... 11,438 51,892 Land, improvements and land option............ 13,502 Other assets.................................. 2,945 3,292 ----------- ----------- Total Investment Properties................. 60,643 68,686 ----------- ----------- Collateralized Mortgage Financing: Collateral for bonds payable.................... 8,946 9,478 Other assets.................................... 382 576 ----------- ----------- Total Collateralized Mortgage Financing..... 9,328 10,054 ----------- ----------- Income Taxes Receivable - Including deferred tax benefits........................................ 20,834 672 ----------- ----------- Total Assets...................................... $653,902 $614,111 =========== =========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
April 30, October 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 ----------- ----------- Homebuilding: Nonrecourse land mortgages........................ $ 26,710 $ 25,151 Accounts payable and other liabilities............ 30,148 45,146 Customers' deposits............................... 24,099 12,371 Nonrecourse mortgages secured by operating properties...................................... 3,875 3,918 ----------- ----------- Total Homebuilding............................ 84,832 86,586 ----------- ----------- Financial Services: Accounts payable and other liabilities............ 1,001 1,631 Mortgage warehouse line of credit................. 17,930 55,196 ----------- ----------- Total Financial Services...................... 18,931 56,827 ----------- ----------- Investment Properties: Accounts payable and other liabilities............ 651 721 Nonrecourse mortgages secured by rental property.. 30,846 31,071 ----------- ----------- Total Investment Properties................... 31,497 31,792 ----------- ----------- Collateralized Mortgage Financing: Accounts payable and other liabilities............ 26 11 Bonds collateralized by mortgages receivable...... 8,550 9,231 ----------- ----------- Total Collateralized Mortgage Financing....... 8,576 9,242 ----------- ----------- Notes Payable: Revolving credit agreement........................ 142,700 30,000 Subordinated notes................................ 190,000 200,000 Accrued interest.................................. 6,186 6,042 ----------- ----------- Total Notes Payable........................... 338,886 236,042 ----------- ----------- Total Liabilities............................. 482,722 420,489 ----------- ----------- Stockholders' Equity: Preferred Stock,$.01 par value-authorized 100,000 shares; none issued Common Stock,Class A,$.01 par value-authorized 87,000,000 shares; issued 15,581,193 shares (including 596,574 shares held in Treasury)..... 156 155 Common Stock,Class B,$.01 par value-authorized 13,000,000 shares; issued 8,147,608 shares (including 345,874 shares held in Treasury)..... 81 82 Paid in Capital................................... 33,935 33,935 Retained Earnings................................. 143,833 164,749 Treasury Stock - at cost.......................... (6,825) (5,299) ----------- ----------- Total Stockholders' Equity.................... 171,180 193,622 ----------- ----------- Total Liabilities and Stockholders' Equity.......... $653,902 $614,111 =========== =========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Data)
Three Months Ended Six Months Ended April 30, April 30, ------------------- ------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Revenues: Homebuilding: Sale of homes...................... $136,235 $143,504 $251,350 $252,074 Land sales and other revenues...... 2,895 4,505 3,855 6,436 --------- --------- --------- --------- Total Homebuilding............... 139,130 148,009 255,205 258,510 Financial Services................... 1,928 2,018 3,786 3,668 Investment Properties................ 2,261 2,009 4,488 6,550 Collateralized Mortgage Financing.... 207 428 400 875 --------- --------- --------- --------- Total Revenues................... 143,526 152,464 263,879 269,603 --------- --------- --------- --------- Expenses: Homebuilding: Cost of sales...................... 117,695 123,141 217,912 217,223 Selling, general and administrative 11,821 11,835 21,717 20,060 Inventory impairment loss.......... 13,475 13,475 --------- --------- --------- --------- Total Homebuilding............... 142,991 134,976 253,104 237,283 --------- --------- --------- --------- Financial Services................... 2,408 2,431 4,800 4,781 --------- --------- --------- --------- Investment Properties: Operations......................... 1,642 1,703 3,204 3,417 Provision for impairment loss...... 14,446 14,446 --------- --------- --------- --------- Total Investment Properties...... 16,088 1,703 17,650 3,417 --------- --------- --------- --------- Collateralized Mortgage Financing.... 224 446 471 921 --------- --------- --------- --------- Corporate General and Administration. 3,283 3,553 6,877 7,196 --------- --------- --------- --------- Interest............................. 8,016 6,796 13,508 12,396 --------- --------- --------- --------- Other Operations..................... 443 976 1,251 1,710 --------- --------- --------- --------- Total Expenses................... 173,453 150,881 297,661 267,704 --------- --------- --------- --------- Income (Loss) Before Income Taxes...... (29,927) 1,583 (33,782) 1,899 --------- --------- --------- --------- State and Federal Income Taxes: State................................ (123) 296 242 836 Federal.............................. (10,662) 39 (13,108) (685) --------- --------- --------- --------- Total Taxes........................ (10,785) 335 (12,866) 151 --------- --------- --------- --------- Net Income (Loss)...................... $(19,142) $ 1,248 $(20,916) $ 1,748 ========= ========= ========= ========= Earnings (Loss) Per Common Share....... $ (0.83) $ 0.05 $ (0.91) $ 0.08 ========= ========= ========= ========= See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars In Thousands)
A Common Stock B Common Stock ------------------- ------------------- Shares Shares Issued and Issued and Paid-In Retained Treasury Outstanding Amount Outstanding Amount Capital Earnings Stock Total ----------- ------ ----------- ------ ------- -------- -------- -------- Balance, October 31, 1996. 15,135,348 $155 7,901,705 $82 $33,935 $164,749 $(5,299) $193,622 Conversion of Class B to Class A Common Stock.... 99,971 1 (99,971) (1) Net Income................ (20,916) (20,916) Treasury stock purchases.. (250,700) (1,526) (1,526) ----------- ------ ----------- ------ ------- -------- -------- -------- Balance, April 30, 1997... 14,984,619 $156 7,801,734 $81 $33,935 $143,833 $(6,825) $171,180 =========== ====== =========== ====== ======= ======== ======== ======== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Six Months Ended April 30, --------------------- 1997 1996 ---------- ---------- Cash Flows From Operating Activities: Net Income (Loss)................................... $ (20,916) $ 1,748 Adjustments to reconcile net income to net cash used in operating activities: Depreciation.................................... 2,928 2,488 Loss on sale and retirement of property and assets.................................... (92) (1,952) Deferred income taxes........................... (8,784) 2,466 Impairment losses............................... 27,921 Decrease (increase) in assets: Escrow cash................................... 2,619 (2,675) Receivables, prepaids and other assets........ (17,335) (16,858) Mortgage notes receivable..................... 38,028 17,121 Inventories................................... (74,471) (46,275) Increase (decrease) in liabilities: State and Federal income taxes................ (11,378) (3,429) Customers' deposits........................... 11,952 6,335 Interest and other accrued liabilities........ (1,265) (7,266) Post development completion costs............. (4,213) (126) Accounts payable.............................. (10,271) (14,215) ---------- ---------- Net cash used in operating activities....... (65,277) (62,638) ---------- ---------- Cash Flows From Investing Activities: Proceeds from sale of property and assets........... 2,238 Purchase of property................................ (1,580) (3,195) Investment in and advances to unconsolidated affiliates........................................ 49 3,642 Investment in income producing properties........... (7,647) (823) ---------- ---------- Net cash provided by (used) in investing activities................................ (9,178) 1,862 ---------- ---------- Cash Flows From Financing Activities: Proceeds from mortgages and notes................... 485,153 559,398 Principal payments on mortgages and notes........... (409,123) (508,521) Principal payments on subordinated debt............. (10,000) Investment in mortgage notes receivable............. 535 1,694 Purchase of treasury stock..............................(1,526) ---------- ---------- Net cash provided by financing activities... 65,039 52,571 ---------- ---------- Net Decrease In Cash.................................. (9,416) (8,205) Cash Balance, Beginning Of Period..................... 15,323 11,914 ---------- ---------- Cash Balance, End Of Period.......................... $ 5,907 $ 3,709 ========== ========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED 1. The consolidated financial statements, except for the October 31, 1996 consolidated balance sheets, have been prepared without audit. In the opinion of management, all adjustments for interim periods presented have been made, which include only normal recurring accruals and deferrals necessary for a fair presentation of consolidated financial position, results of operations, and changes in cash flows. Results for the interim periods are not necessarily indicative of the results which might be expected for a full year. 2. Certain expenses which had been previously reported as selling, general and administration were reclassified to cost of sales. These costs include sales commissions, buyer concessions, the amortization of prepaid selling expenses, property taxes and condominium association subsidies. The amount reclassified for the three and six months ended April 30, 1997 was $7,625,000 and $13,412,000, respectively. In addition, the revenues and expenses of the Company's title division have been reclassified out of homebuilding and other operations, respectively, into the financial services section of the consolidated statements of income. The amount of title revenues and expenses reclassified for the three months ended April 30, 1997 was $689,000 and $662,000, respectively, and for the six months ended April 30, 1996 was $1,218,000 and $1,198,000, respectively. 3. Interest costs incurred, expensed and capitalized were: Three Months Ended Six Months Ended April 30, April 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (Dollars in Thousands) Interest Incurred (1): Residential (3)........... $ 7,108 $ 7,587 $ 13,692 $ 14,672 Commercial(4)............. 1,296 1,391 2,613 2,901 -------- -------- -------- -------- Total Incurred.......... $ 8,404 $ 8,978 $ 16,305 $ 17,573 ======== ======== ======== ======== Interest Expensed: Residential (3)........... $ 6,720 $ 5,405 $ 10,895 $ 9,495 Commercial (4)............ 1,296 1,391 2,613 2,901 -------- -------- -------- -------- Total Expensed......... $ 8,016 $ 6,796 $ 13,508 $ 12,396 ======== ======== ======== ======== Interest Capitalized at Beginning of Period....... $ 41,551 $ 39,030 $ 39,152 $ 36,182 Plus Interest Incurred...... 8,404 8,978 16,305 17,573 Less Interest Expensed...... 8,016 6,796 13,508 12,396 Less Charges to Reserves.... 92 104 102 251 Less Impairment Adjustments. 945 945 -------- -------- -------- -------- Interest Capitalized at End of Period............. $ 40,902 $ 41,108 $ 40,902 $ 41,108 ======== ======== ======== ======== Interest Capitalized at End of Period (5): Residential(3)............ $ 33,772 $ 34,610 $ 33,772 $ 34,610 Commercial(2)............. 7,130 6,498 7,130 6,498 -------- -------- -------- -------- Total Capitalized....... $ 40,902 $ 41,108 $ 40,902 $ 41,108 ======== ======== ======== ======== (1) Does not include interest incurred by the Company's mortgage and finance subsidiaries. (2) Does not include a reduction for depreciation. (3) Represents acquisition interest for construction, land and development costs which is charged to interest expense when homes are delivered. (4) Represents interest allocated to or incurred on long term debt for investment properties and charged to interest expense. (5) Commercial interest includes $831,000 reported at October 31, 1996 as capitalized residential interest. This reclassification is a result of the transfer of land and related capitalized interest from homebuilding to investment properties. 4. Homebuilding accumulated depreciation at April 30, 1997 and October 31, 1996 amounted to $16,456,000 and $14,970,000, respectively. Rental property accumulated depreciation at April 30, 1997 and October 31, 1996 amounted to $12,242,000 and $11,108,000, respectively. 5. In accordance with FAS 121, the Company records impairment losses on inventories related to communities under development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. As of April 30, 1997 inventory with a carrying amount of $27,510,000 was written down to its fair value. The total amount of this writedown was $8,714,000. This is principally attributed to a $5,364,000 writedown of the Company's investment in Florida communities. This writedown is based upon management's decision to reduce its investment in Florida by accelerating sales through the reduction of sales prices and offering pricing concessions. The remainder of the writedown is attributable to one community in New Jersey and one in Pennsylvania. The FAS 121 calculations were based on the Company's evaluation of the expected revenue less costs to complete including interest and selling costs. In addition, the Company also recorded a $4,761,000 write-off of certain residential land options including approval, engineering and capitalized interest costs for two properties in New Jersey and one in Pennsylvania. The Company has decided to exit from the investment properties business. As a result, all commercial properties will no longer be held for use, but will be held for sale. This resulted in FAS 121 impairment losses on certain investment properties. The impairment losses are a result of the properties carrying amounts exceeding their fair value less selling costs. As of April 30, 1997, properties with a carrying amount of $33,820,000 were written down to their fair value. The total amount of this writedown was $12,690,000. The Company also recorded a $1,756,000 write-off of a commercial land option including approval, engineering and capitalized interest costs. The writedowns and write-offs for the quarter ended April 30, 1997 are attributable to commercial properties in both New Jersey and Florida. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY The Company's uses for cash during the six months ended April 30, 1997 were for operating expenses, seasonal increases in housing inventories, construction, income taxes, interest, the reduction of subordinated notes, and the repurchase of common stock. The Company provided for its cash requirements from the revolving credit facility, land purchase notes, and from housing and other revenues. The Company believes that these sources of cash are sufficient to finance its working capital requirements and other needs. In December 1996 the Board of Directors authorized a stock repurchase program to purchase up to 2 million shares of Class A Common Stock. As of June 6, 1997, 723,100 shares were repurchased under this program. The Company's bank borrowings are made pursuant to a revolving credit agreement (the "Agreement") that provides a revolving credit line of up to $245,000,000 (the "Revolving Credit Facility") through March 2000. Interest is payable monthly and at various rates of either prime plus 1/8% or Libor plus 1.625%. The Company recently extended the Agreement one year and believes that it will be able either to extend the Agreement beyond March 2000 or negotiate a replacement facility, but there can be no assurance of such extension or replacement facility. The Company currently is in compliance and intends to maintain compliance with its covenants under the Agreement. As of April 30, 1997, borrowings under the Agreement were $142,700,000. The aggregate principal amount of subordinated indebtedness issued by the Company and outstanding as of April 30, 1997 was $190,000,000. During the six months ended April 30, 1997, the Company reduced its subordinated debt by $10,000,000. Annual sinking fund payments of $10,000,000 and $20,000,000 are required in April 2000 and 2001, respectively, with additional payments of $60,000,000 and $100,000,000 due in April 2002 and June 2005, respectively. The Company's mortgage banking subsidiary borrows under a bank warehousing arrangement. Other finance subsidiaries formerly borrowed from a multi-builder owned financial corporation and a builder owned financial corporation to finance mortgage backed securities, but in fiscal 1988 decided to cease further borrowing from multi-builder and builder owned financial corporations. These non-recourse borrowings have been generally secured by mortgage loans originated by one of the Company's subsidiaries. As of April 30, 1997, the aggregate principal amount of all such borrowings was $26,480,000. The book value of the Company's residential inventories, rental condominiums, and commercial properties completed and under development amounted to the following: April 30, October 31, 1997 1996 ------------ ------------ Residential real estate inventory.......... $437,303,000 $376,307,000 Residential rental property................ 11,438,000 12,190,000 ------------ ------------ Total Residential Real Estate............ 448,741,000 388,497,000 Commercial properties...................... 45,847,000 53,204,000 ------------ ------------ Combined Total........................... $494,588,000 $441,701,000 ============ ============ Total residential real estate increased $60,244,000 during the six months ended April 30, 1997 primarily as a result of an inventory increase of $81,614,000, which was partially offset by the reallocation of land and approval costs to commercial properties (see below), the writedown of certain communities under development or land held for sale, and the write-off of optioned parcels of land and related approval, engineering and capitalized interest costs. See "Notes to Consolidated Financial Statements - Note 5." The increase in residential real estate inventory was primarily due to the Company's seasonal increase in construction activities for deliveries later this year. Substantially all residential homes under construction or completed and included in real estate inventory at April 30, 1997 are expected to be closed during the next twelve months. Most residential real estate completed or under development is financed through the Company's line of credit and subordinated indebtedness. The following table summarizes housing lots in the Company's active selling communities under development (including Poland): (1) (2) Homes Contracted Remaining Commun- Approved Deliv- Not Home Sites ities Lots ered Delivered Available ------- -------- ------ ---------- ---------- April 30, 1997........ 80 14,342 4,858 2,047 7,437 October 31, 1996...... 85 12,942 4,613 1,479 6,850 (1) Includes 68 and 274 lots under option at April 30, 1997 and October 31, 1996, respectively. (2) Of the total home lots available, 509 and 528 were under construction or complete (including 120 and 106 models and sales offices), 1,948 and 1,762 were under option, and 1,210 and 1,280 were financed through purchase money mortgages at April 30, 1997 and October 31, 1996, respectively. In addition, at April 30, 1997 and October 31, 1996, respectively, in substantially completed or suspended communities, the Company owned or had under option 558 and 448 home lots. The Company also controls a supply of land primarily through options for future development. This land is consistent with anticipated home building requirements in its housing markets. At April 30, 1997 the Company controlled such land to build 9,552 proposed homes, compared to 13,083 homes at October 31, 1996. The following table summarizes the Company's started or completed unsold homes in active, substantially complete and suspended communities: April 30, October 31, 1997 1996 ----------------------- ----------------------- Unsold Unsold Homes Models Total Homes Models Total ------ ------ ----- ------ ------ ----- Northeast Region.... 247 78 325 242 71 313 North Carolina...... 57 -- 57 68 -- 68 Florida............. 213 7 220 51 10 61 Virginia............ 13 9 22 18 3 21 California.......... 36 24 60 67 24 91 Poland.............. 9 2 11 2 2 4 ------ ------ ----- ------ ------ ----- Total 575 120 695 448 110 558 ====== ====== ===== ====== ====== ===== The Company's commercial properties represent investments in commercial and retail facilities completed or under development (see "Investment Properties" under "Results of Operations"). At April 30, 1997, the Company had long-term non-recourse financing aggregating $30,846,000 on six commercial facilities, a decrease from October 31, 1996, due to $225,000 in principal amortization. The decrease in commercial properties of $7,357,000 is primarily the result of the writedown of certain facilities and land held for sale to fair value and the write-off of an optioned parcel of land and related approval, engineering and capitalized interest costs totaling $14,446,000. The writedowns and write-off were partially offset by the reallocation of land and approval costs on a multi- use parcel of land. As a result of the reallocation, $7,143,000 was added to investment properties under development from homebuilding land held for future development. See "Notes to Consolidated Financial Statements - Note 5." Collateral Mortgage Financing - collateral for bonds payable consist of collateralized mortgages receivable which are pledged against non-recourse collateralized mortgage obligations. Financial Services - mortgage loans held for sale consist of residential mortgages receivable of which $19,519,000 and $57,095,000 at April 30, 1997 and October 31, 1996, respectively, are being temporarily warehoused and awaiting sale in the secondary mortgage market. The balance of such mortgages is being held as an investment by the Company. The Company may incur risk with respect to mortgages that are delinquent, but only to the extent the losses are not covered by mortgage insurance or resale value of the house. Historically, the Company has incurred minimal credit losses. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO THE THREE AND SIX MONTHS ENDED APRIL 30, 1996 The Company's operations consist primarily of residential housing development and sales in its Northeast Region (comprising of New Jersey, southern New York State and eastern Pennsylvania), North Carolina, southeastern Florida, northern Virginia, southwestern California and Poland. In addition, the Company develops and operates commercial properties as long-term investments in New Jersey, and, to a lesser extent, Florida, but is exiting this business (see "Investment Properties" below). At October 31, 1996, the Company reclassified certain expenses previously reported as selling, general and administration to cost of sales. These costs include sales commissions, buyer concessions, the amortization of prepaid selling expenses, property taxes and condominium association subsidies. The amount of reclassifications for the three and six months ended April 30, 1997 was $7,625,000 and $13,412,000, respectively. In addition, the Company reclassified its title revenues previously reported as other homebuilding revenues to financial services revenues, and title expenses from other operation expenses to financial service expenses. The amount of title revenues and expenses reclassified for the three months ended April 30, 1996 was $689,000 and $662,000, respectively, and for the six months ended April 30, 1996 was $1,218,000 and $1,198,000, respectively. Historically, the Company's first six months of the year has produced substantially fewer deliveries than the last six months. This was true in fiscal 1996 when the Company delivered 33% of its homes during the first six months. Management believes this will be true for fiscal 1997. During the past few years the Company has been able to produce a profit on this lower volume. That is not the case in fiscal 1997. Although the Company's Northeast Region and North Carolina Division produced profits, compared to the six months ended April 30, 1996, profits were lower due to decreased gross margins. These profits were offset by increased losses in Florida and Virginia due to fewer homes delivered, losses from its other operations, writedown of certain assets to their fair values, and the write-off of four options and related approval, engineering and capitalized interest costs. See "Notes to Consolidated Financial Statements - Note 5." Due to the writedowns and write-offs, management does not believe the Company will be profitable in fiscal 1997. Management feels operating profits before these adjustments will approximate fiscal 1996 results. Important indicators of the future results of the Company are recently signed contracts and home contract backlog for future deliveries. The Company's sales contracts and homes in contract (using base sales prices) by market area is set forth below: Sales Contracts for the Six Months Ended Contract Backlog April 30, as of April 30, ----------------------- -------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (Dollars in Thousands) Northeast Region: Dollars............. $211,384 $203,361 $286,424 $253,043 Homes............... 1,099 1,122 1,401 1,325 North Carolina: Dollars............. $ 67,494 $ 62,730 $ 62,851 $ 60,703 Homes............... 366 380 333 361 Florida: Dollars............. $ 31,107 $ 60,318 $ 39,276 $ 60,103 Homes............... 185 404 222 398 Virginia: Dollars............. $ 7,757 $ 9,284 $ 5,764 $ 8,881 Homes............... 37 47 27 42 California: Dollars............. $ 38,651 $ 27,705 $ 16,317 $ 18,143 Homes............... 191 149 85 95 Poland: Dollars............. $ 2,075 - $ 3,088 - Homes............... 28 - 42 - Totals: Dollars............. $358,468 $363,398 $413,720 $400,873 Homes............... 1,906 2,102 2,110 2,221 Reduced sales contracts and below average return on investment in the Florida Division have resulted in Management's decision to decrease the Company's investment in this division by approximately $25.0 million. As a result, certain communities were written down due to reduced sales prices and increased buyer concessions to accelerate sales. In addition, other idle property was written down since it will be offered for sale and not developed. See "Notes to Consolidated Financial Statements - Note 5." Total Revenues: Revenues for the three months ended April 30, 1997 decreased $8.9 million or 5.9%, compared to the same period last year. This was a result of decreased revenues from sale of homes of $7.3 million, a $1.6 million decrease in land sales and other homebuilding revenues, a $0.1 million decrease in financial services revenues, and a $0.2 million decrease in collateralized mortgage financing revenues. These decreases were partially offset by a $0.3 million increase in investment properties revenues. Revenues for the six months ended April 30, 1997 decreased $5.7 million or 2.1%, compared to the same period last year. This was a result of decreased revenues from the sale of homes of $0.7 million, a $2.6 million decrease in land sales and other homebuilding revenues, a $2.0 million decrease in investment properties revenues, and a $0.5 million decrease in collateralized mortgage financing revenues. These decreases were partially offset by a $0.1 million increase in financial services revenues. Homebuilding: Revenues from the sale of homes decreased $7.3 million or 5.1% during the three months ended April 30, 1997, and decreased $0.7 million or 0.3% during the six months ended April 30, 1997 compared to the same periods last year. Revenues from sales of homes are recorded at the time each home is delivered and title and possession have been transferred to the buyer. Information on homes delivered by market area is set forth below: Three Months Ended Six Months Ended April 30, April 30, ------------------- ------------------ 1997 1996 1997 1996 --------- -------- -------- -------- (Dollars in Thousands) Northeast Region: Housing Revenues..... $ 70,678 $ 81,950 $134,118 $137,315 Homes Delivered...... 345 402 675 682 North Carolina: Housing Revenues..... $ 26,341 $ 24,445 $ 48,383 $ 45,507 Homes Delivered...... 139 148 266 272 Florida: Housing Revenues..... $ 17,042 $ 20,890 $ 30,870 $ 38,768 Homes Delivered...... 101 132 180 249 Virginia: Housing Revenues..... $ 3,018 $ 3,200 $ 6,425 $ 7,597 Homes Delivered...... 16 12 34 33 California: Housing Revenues..... $ 18,489 $ 13,019 $ 30,822 $ 22,887 Homes Delivered...... 95 69 152 121 Poland: Housing Revenues..... $ 667 -- $ 732 -- Homes Delivered...... 10 11 Totals: Housing Revenues..... $136,235 $143,504 $251,350 $252,074 Homes Delivered...... 706 763 1,318 1,357 The decreased number of homes delivered for the three and six months ended April 30, 1997, compared to the prior year, was primarily due to the decreases in the Company's Northeast Region and Florida offset somewhat by increases in California. Due to the timing of the opening of new communities in the Northeast Region, fewer homes were delivered during the three months ended April 30, 1997. In Florida, the Company entered the year with a lower backlog of sales contracts at November 1, 1996 than at November 1, 1995. A lower backlog coupled with significantly fewer Florida sales contracts due to a highly competitive market resulted in fewer deliveries. During the three months ended April 30, 1997 the Company has written down certain residential communities, and written off certain residential land options including approval, engineering and capitalized interest costs. The writedowns and write-offs amounted to $13,475,000. In Florida the Company's return on investment has been unsatisfactory. As a result, the Company has decided to reduce its investment in Florida by $25.0 million. To do so on an accelerated basis, it has reduced prices and offered pricing concessions in all Florida residential communities. The Company has also decided to sell all inactive properties in Florida. In the Northeast Region the Company changed the product type to be constructed on a parcel of land it owns. Also in the Northeast the Company has decided to sell an optioned property instead of developing a community. The result of the above decisions was a reduction in fair values below carrying amounts and, in accordance with FAS 121, the Company recorded an impairment loss on the related inventories. See "Notes to Consolidated Financial Statements - Note 5." The Northeast Region also wrote off three option properties and related approval, engineering and capitalized interest costs. In two cases the Company decided to drop the option due to environmental problems. The third option was dropped because the community's proforma profitability did not produce an adequate return on investment commensurate with the risk. Cost of sales include expenses for housing and land and lot sales. A breakout of such expenses for housing sales and housing gross margin is set forth below: Three Months Ended Six Months Ended April 30, April 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (Dollars in Thousands) Sale of Homes................ $136,235 $143,504 $251,350 $252,074 Cost of Sales................ 116,522 120,222 216,305 213,300 -------- -------- -------- -------- Housing Gross Margin......... $ 19,731 $ 23,282 $ 35,045 $ 38,774 ======== ======== ======== ======== Gross Margin Percentage...... 14.4% 16.2% 13.9% 15.4% Cost of Sales expenses as a percentage of home sales revenues are presented below: Three Months Ended Six Months Ended April 30, April 30, ------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Sale of Homes................ 100.0% 100.0% 100.0% 100.0% -------- -------- -------- -------- Cost of Sales: Housing, land & development costs.... 76.9% 74.7% 76.9% 75.2% Commissions............ 2.0% 1.6% 2.0% 1.7% Financing concessions.. 0.9% 1.0% 0.9% 1.0% Overheads.............. 5.8% 6.5% 6.3% 6.7% -------- -------- -------- -------- Total Cost of Sales.......... 85.6% 83.8% 86.1% 84.6% -------- -------- -------- -------- Gross Margin................. 14.4% 16.2% 13.9% 15.4% ======== ======== ======== ======== The Company sells a variety of home types in various local communities, each yielding a different gross margin. As a result, depending on the mix of both communities and of home types delivered, consolidated quarterly gross margin will fluctuate up or down and may not be representative of the consolidated gross margin for the year. In addition, gross margin percentages are higher in the Northeast Region compared to the Company's other markets. For the three and six months ended April 30, 1997 the Company's gross margin decreased 1.8% and 1.5%, respectively, compared to the same periods last year. This can primarily be attributed to lower gross margins in the Northeast Region, Florida, and North Carolina and the change in geographic product mix. The decline in the Northeast Region's gross margin can be principally attributed to fewer deliveries in the Company's higher margined adult and Jersey Shore communities. In Florida, the gross margin is lower due to increased pricing concessions to accelerate sales. North Carolina's lower gross margin is primarily attributed to a change in product mix, increased lot costs and concessions on started unsold homes. The geographic product mix shifted 5.2% and 1.0% to lower margined homes outside the Northeast Region for the three and six months ended April 30, 1997, respectively, compared to the same periods last year. Selling, general, and administrative expenses were unchanged during the three months ended April 30, 1997 and increased $1.7 million during the six months ended April 30, 1997 compared to the same periods last year. As a percentage of home revenues, such expenses increased to 8.7% for the three months ended April 30, 1997 from 8.2% for the prior year three months, and increased to 8.6% for the six months ended April 30, 1997 from 8.0% for the prior year six months. The dollar and percentage increase in selling, general and administrative expenses is principally due to increased general and administrative expenses in the Northeast Region. Land Sales and Other Revenues: Land sales and other revenues consist primarily of land and lot sales. A breakout of land and lot sales is set forth below: Three Months Ended Six Months Ended April 30, April 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Land and Lot Sales................ $ 1,352 $ 3,476 $ 1,896 $ 4,669 Cost of Sales..................... 1,173 2,919 1,607 3,923 -------- -------- -------- -------- Land and Lot Sales Gross Margin... $ 179 $ 557 $ 289 $ 746 ======== ======== ======== ======== Land and lot sales are incidental to the Company's residential housing operations and are expected to continue in the future but may significantly fluctuate up or down. Financial Services Financial services consist primarily of originating mortgages from sales of the Company's homes, and selling such mortgages in the secondary market. In addition, title insurance activities have been reclassified from other housing operations to financial services, as noted above. For the six months ended April 30, 1997 compared to the six months ended April 30, 1996, the loss resulting from financial services decreased by $0.1 million. This was a direct result of the Company's wholly-owned mortgage banking subsidiary originating mortgages at a lower cost, as well as higher interest rate spreads, offset by reduced revenues due to fewer deliveries by the Company's housing operations. Investment Properties Investment Properties consist of rental properties, property management, and gains or losses from the sale of such property. At April 30, 1997, the Company owned and was leasing two office buildings, three office/warehouse facilities, two retail centers, and two senior citizen rental communities in New Jersey. During the first quarter of fiscal 1996 the Company sold a retail center and reported a pretax profit of $1.9 million. Investment Properties expenses do not include interest expense which is reported below under "Interest." During the three months ended April 30, 1997 the Company announced that it is planning an orderly exit from the investment properties business. The Company plans to sell its investment properties (except for the two senior citizen rental communities) which will generate approximately $35.0 million to be redeployed in its residential homebuilding business. Management believes redeployment of this capital will enhance future profitability of the Company. In accordance with FAS 121, the Company reevaluated such properties as held for sale. Since certain investment properties' carrying amounts exceeded the fair value less selling costs, an impairment loss was recorded against the related asset. These writedowns were in New Jersey and Florida. See "Notes to Consolidated Financial Statements - Note 5." In New Jersey the Company also wrote off an option and related approval, engineering and capitalized interest costs. The writedowns and write-offs of investment properties amounted to $14,446,000. Collateralized Mortgage Financing In the years prior to February 29, 1988 the Company pledged mortgage loans originated by its mortgage banking subsidiaries against collateralized mortgage obligations ("CMO's"). Subsequently the Company discontinued its CMO program. As a result, CMO operations are diminishing as pledged loans are decreasing through principal amortization and loan payoffs, and related bonds are reduced. In recent years, as a result of bonds becoming callable, the Company has also sold a portion of its CMO pledged mortgages. Corporate General and Administrative Corporate general and administration expenses includes the operations at the Company's headquarters in Red Bank, New Jersey. Such expenses include the Company's executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, and administration of insurance, quality, and safety. Corporate general and administration expenses dropped $0.3 million for both the three and six months ended April 30, 1997 compared to the same periods last year. As a percentage of total revenues such expenses were approximately 2.6% and 2.7% for the three and six months ended April 30, 1997 and 1996, respectively. Interest Interest expense includes housing, land and lot, and rental properties interest. Interest expense is broken down as follows: Three Months Ended Six Months Ended April 30, April 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Sale of Homes.............. $ 6,586 $ 5,149 $10,658 $ 9,199 Land and Lot Sales......... 134 256 237 296 Rental Properties.......... 1,296 1,391 2,613 2,901 -------- -------- -------- -------- Total...................... $ 8,016 $ 6,796 $13,508 $12,396 ======== ======== ======== ======== Housing interest as a percentage of sale of homes revenues amounted to 4.8% and 4.2% for the three and six months ended April 30, 1997, respectively, and 3.6% and 3.6% for the three and six months ended April 30, 1996, respectively. The increase in the percentage for the three and six months ended April 30, 1997 was primarily the result of the Company discontinuing the capitalization of interest on communities in planning which are not under active development. As a result, interest expense increased $1.0 million in these periods. Other Operations Other operations consist primarily of miscellaneous residential housing operations expenses, amortization of prepaid subordinated note issuance expenses and corporate owned life insurance loan interest. The Company's title operation expenses have been reclassified to financial services. Total Taxes Total tax credits for the three and six months ended April 30, 1997 were $10.8 million and $12.9 million, respectively. Deferred federal and state income tax assets primarily represent the deferred tax benefits arising from temporary differences between book and tax income which will be recognized in future years. Inflation Inflation has a long-term effect on the Company because increasing costs of land, materials and labor result in increasing sale prices of its homes. In general, these price increases have been commensurate with the general rate of inflation in the Company's housing market and have not had a significant adverse effect on the sale of the Company's homes. A significant risk faced by the housing industry generally is that rising house costs, including land and interest costs, will substantially outpace increases in the income of potential purchasers. In recent years, in the price ranges in which it sells homes, the Company has not found this risk to be a significant problem. Inflation has a lesser short-term effect on the Company because the Company generally negotiates fixed price contracts with its subcontractors and material suppliers for the construction of its homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between four to twelve months. Construction costs for residential buildings represent approximately 51% of the Company's total costs and expenses. Item 4. Submission to Matters to a Vote of Security Holders The Company held its annual stockholders meeting on April 15, 1997 at 10:30 a.m. in the Board Room of the American Stock Exchange, 13th floor, 86 Trinity Place, New York, New York. The following matters were votes at the meeting: . Election of all Directors to hold office until the next Annual Meeting of Stockholders. The elected Directors were: .. Kevork S. Hovnanian .. Ara K. Hovnanian .. Paul W. Buchanan .. Arthur Greenbaum .. Desmond P. McDonald .. Peter S. Reinhart .. John J. Schimpf .. J. Larry Sorsby .. Stephen D. Weinroth . Ratification of selection of Ernst & Young, LLP as certified independent accountants for fiscal year ending October 31, 1997. .. Votes For 12,781,331 .. Votes Against 44,234 .. Abstain 77,771 . Approval of amendments to the Company's Cash Bonus Plan. .. Votes For 12,489,547 .. Votes Against 354,070 .. Abstain 59,719 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOVNANIAN ENTERPRISES, INC. (Registrant) DATE: June 13, 1997 /S/KEVORK S. HOVNANIAN Kevork S. Hovnanian, Chairman of the Board and Chief Executive Officer DATE: June 13, 1997 /S/PAUL W. BUCHANAN Paul W. Buchanan, Senior Vice President Corporate Controller
 

5 1000 6-MOS OCT-31-1997 APR-30-1997 8,499 0 32,712 0 437,303 569,129 33,831 15,409 653,902 249,451 233,271 237 0 0 170,943 653,902 253,246 263,879 217,912 284,153 0 0 13,508 (33,782) (12,866) (20,916) 0 0 0 (20,916) (0.91) (0.91)
                              FOURTH AMENDMENT TO CREDIT AGREEMENT


 This Fourth Amendment to Credit Agreement ("Fourth Amendment") dated as of the
13th day of May, 1997 among K. Hovnanian Enterprises, Inc. ("Company"),
Hovnanian Enterprises, Inc. ("Hovnanian"), the subsidiaries of Hovnanian listed
on the signature pages of this Fourth Amendment (each, together with Hovnanian,
a "Guarantor" and collectively the "Guarantors") and
PNC Bank, National Association (formerly known as Midlantic Bank, N.A.) ("PNC"),
The Chase Manhattan Bank (formerly Chemical Bank) ("Chase"), CoreStates Bank,
N.A. (formerly Meridian Bank) ("CoreStates"), NationsBank, National Association
("NationsBank"), First National Bank of Boston ("Bank of Boston"), Bank of
America Illinois ("B of A Illinois"), The First National Bank of Chicago ("First
of Chicago"), Comerica Bank ("Comerica") and Credit Lyonnais New York Branch
("Credit Lyonnais") (each such banking institution individually referred to as a
"Bank" and collectively as the "Banks"), and PNC Bank, National Association
(formerly known as Midlantic Bank, N.A.), as Agent for the Banks ("Agent").

                            BACKGROUND
 WHEREAS, pursuant to that certain Credit Agreement, dated as of July 30, 1993,
among the Company, certain Guarantors named therein or thereafter added, the
Banks named therein, and the Agent (as the same was amended by a certain
Amendment to Credit Agreement dated as of July 19, 1994 (the "Amendment"), a
certain Second Amendment to Credit Agreement dated as of April 28, 1995 ("Second
Amendment") and a certain Third Amendment to Credit Agreement dated as of June
4, 1996 ("Third Amendment") and may be further amended or supplemented from time
to time, the "Credit Agreement"), the Banks named therein agreed to make certain
loans and extend credit to the Company;
 WHEREAS, the performance by the Company of its obligations under the Credit
Agreement and the Notes is guaranteed, jointly and severally, by the Guarantors
pursuant to the Guaranties of the Guarantors to each of the Banks (collectively,
the "Guaranties");

 WHEREAS, pursuant to a certain Joinder Agreement and related agreements dated
December 8, 1993, PNC Bank, National Association ("PNC") joined in the Revolving
Credit Commitment and thereby became an Additional Bank under the Credit
Agreement;

 WHEREAS, pursuant to a certain Joinder Agreement ("Meridian Joinder") and
related agreements dated January 26, 1994, Meridian (now known as CoreStates
Bank, N.A.) joined in the Revolving Credit Commitment and has thereby become an
Additional Bank under the Credit Agreement;

 WHEREAS, pursuant to the Amendment, NationsBank, Bank of Boston, and
Continental Bank (now known as Bank of America Illinois) joined in the Revolving
Credit Commitment and thereby became Additional Banks thereunder, and the
parties made certain other modifications in their financing arrangements;

 WHEREAS, pursuant to Section 8.7(c) of the Credit Agreement and to a certain
Joinder Agreement and related agreements dated August 31, 1994, Bank of America
National Trust and Savings Association ("B of A") joined in the Revolving Credit
Commitment and thereby became the Additional Bank referred to in said Section
8.7(c) of the Credit Agreement resulting in an increase in the total amount of
Revolving Credit Commitments to $215,000,000;

 WHEREAS, B of A Illinois has obtained by assignment the Revolving Credit
Commitment, Revolving Credit Note and outstanding Revolving Credit Loans of B of
A and has succeeded to the rights, title, interest and obligations of B of A
with respect thereto and under the Credit Agreement and related agreements and
documents;

 WHEREAS, as of the date of the Third Amendment, First of Chicago obtained by
assignment the Revolving Credit Commitment, Revolving Credit Note and
outstanding Revolving Credit Loans of NBD Bank ("NBD") and succeeded to the
rights, title, interest and obligations of NBD with respect thereto and under
the Credit Agreement and related agreements and documents;

 WHEREAS, as of the date of the Third Amendment, Midlantic (now known as PNC
Bank, National Association) obtained by assignment the Revolving Credit
Commitment, Revolving Credit Note and outstanding Revolving Credit Loans of PNC
and succeeded to the rights, title, interest and obligations of PNC with respect
thereto and under the Credit Agreement and related agreements and
documents;

 WHEREAS, as of the date of the Third Amendment, the Revolving Credit Commitment
of Summit Bank (formerly known as United Jersey Bank) in the amount of
$20,000,000 was terminated and all outstanding Revolving Credit Loans (with
interest accrued to the date of payment) owed to such Bank were thereupon paid
in full;

 WHEREAS, pursuant to the terms of the Third Amendment, Comerica and Credit
Lyonnais joined in the Revolving Credit Commitment (each in the amount of
$20,000,000)  and thereby became Additional Banks under the Credit Agreement;
and

 WHEREAS, the Company, the Guarantors, the Banks and the Agent desire to further
modify the provisions of the Credit Agreement under the terms and conditions set
forth in this Fourth Amendment.

 NOW, THEREFORE, with the foregoing Background incorporated by reference and
made part hereof, and intending to be legally bound, the parties hereto promise
and agree as follows:

 1.   All terms used herein as defined terms and not herein defined shall have
the respective meanings ascribed to them in the Credit Agreement.

 2.   The definitions of "Commitment Termination Date,"  "Initial Libor Margin,"
"Initial Prime Margin," "Libor," "Libor Based Rate," "Prime Based Rate" and
"Prime Rate" contained in Paragraph 1.1 of the Loan Agreement are hereby deleted
and respectively replaced in their entirety by the following new definitions:
      "Commitment Termination Date" shall mean, with respect to each
      Bank, March 31, 2000, provided, however, that on or before March 31
      of each year, each Bank will review its respective commitment and, in
      its sole discretion, may extend the Commitment Termination Date for
      a period of twelve months, provided, that in no event shall the
      Commitment Termination Date be so extended unless and until all
      Banks agree to such extension in writing.

      "Initial Libor Margin" shall mean 200 basis points prior to the date of
      the Third Amendment, 175 basis points between the date of the Third
      Amendment and the date of the Fourth Amendment, and 162.5 basis
      points thereafter.

      "Initial Prime Margin" shall mean 50 basis points prior to the date of
      the Third Amendment, 25 basis points between the date of the Third
      Amendment and the date of the Fourth Amendment, and 12.5 basis points
      thereafter.
      "Libor" shall mean, with respect to a specified Interest Period, that
      rate of interest per annum determined by the Agent (whose determination
      shall be final and conclusive save for any manifest error) to be equal
      to the average of the rates per annum (set forth on Telerate display
      page 3750 or such other display page on the Telerate System as may
      replace such page to evidence the average of rates quoted by banks
      designated by the British Bankers' Association (or appropriate successor
      or, if the British Bankers' Association or its successor ceases to
      provide such quotes, a comparable replacement determined by the Agent)
      at which deposits of United States Dollars of an amount comparable to
      the amount of the borrowing hereunder or the outstanding principal
      amount, as the case may be, from the Banks, and for a period equal to
      the duration of the specified Interest Period, are offered to the Agent
      in the London Interbank Eurodollar Market at or about eleven a.m.
      (London time) on the second Business Day immediately preceding the
      first day of such Interest Period for delivery on the first day of such
      Interest Period.

      "Libor Based Rate" shall mean, with respect to a specified Interest
      Period, that rate of interest per annum which is equal to Libor as
      determined by the Agent plus the Applicable Libor Margin, plus, the
      cost (as determined by the Agent whose determination shall be final and
      conclusive save for manifest error) of maintaining the Reserve
      Percentage required for eurocurrency funding (currently referred to as
      "Eurocurrency Liabilities" in Regulation D of the Regulations of the
      Board of Governors of the Federal Reserve System).

      "Prime Rate" shall mean the fluctuating rate of interest announced from
      time to time by the Agent as its "prime rate," "prime lending rate,"
      "base rate" or "base lending rate." This rate of interest is determined
      from time to time by the Agent as a means of pricing some loans to
      customers and is neither tied to any external rate of interest or index
      nor does it necessarily reflect the lowest rate of interest actually
      charged by the Agent or any Bank to any particular class or category of
      customers of the Agent or any Bank.

      "Prime Based Rate" shall mean that rate of interest per annum which is
      equal to the Prime Rate of the Agent, plus the Applicable Prime Margin.
      Notwithstanding anything to the contrary contained in, or any
      calculation otherwise resulting from, the definition of Adjusted Prime
      Margin, the Prime Based Rate shall at no time be less than the Prime
      Rate.

 3.   The following new definitions are hereby added to and deemed incorporated
into (in their respective alphabetical order) Section 1.1 of the Credit
Agreement:
      "Federal Funds Rate" means on any one day the weighted average of the
      rate on overnight Federal Funds Transactions with members of the Federal
      Reserve System only arranged by Federal Funds Brokers as published as of
      such day by the Federal Reserve Bank of New York or if not so published,
      the rate then used by First Class Banks in extending overnight loans to
      other First Class Banks.

      "Fourth Amendment" means that certain Fourth Amendment to Credit
      Agreement dated May ___, 1997 among the Company, the Guarantors
      identified therein, the Banks identified therein and the Agent.

 4.   The definition of "Loan Percentage" in Paragraph 1.1 of the Credit
Agreement is modified to delete therefrom the words "as of the date of
acceleration of the obligations of Company to the Banks hereunder" and replace
them with the words "as of the date a remittance is to be made by the Agent to
the Banks hereunder."

 5.   Paragraph 2.1 of the Credit Agreement is modified to (a) delete the ","
after the word "Percentages" in the 17th line of such paragraph and replace it
with a "." and (b) delete all the words in such paragraph beginning with the
word "provided" in the 17th line and ending with the words "Subsection 2.2" in
the 29th line.

 6.   Paragraph 2.4(a) of the Credit Agreement is modified to (a) delete from
the 2nd line thereof the words "each relevant Bank" and replace them with the
words "the Agent" and (b) delete from the 4th line thereof the words "one (1)
Business Day's" and insert in the 5th line thereof the words "on the day the
Revolving Credit Loan is to be made" after the words "irrevocable notice
thereof."

 7.   Paragraph 2.4 of the Credit Agreement is modified to add a new
subparagraph (c) to read as follows:
      (c)  (i)  All requests by the Company for Revolving Credit Loans shall
      be made by 11:00 a.m., New Jersey time, on the day specified in
      subparagraph (a) hereof.  Upon receiving a request for a Revolving
      Credit Loan in accordance with subparagraphs (a) and (c) hereof, Agent
      shall notify all Banks of the request as soon as practical thereafter in
      writing by facsimile transmission, but no later than twelve o'clock
      (12:00) noon, New Jersey time or as soon as is reasonably practicable
      thereafter.  Each Bank shall remit its applicable Revolving Credit
      Commitment Percentage of the requested Revolving Credit Loan to Agent by
      remitting federal funds immediately available, to Agent pursuant to
      Agent's instructions prior to two-thirty (2:30) p.m. New Jersey time on
      the date the Revolving Credit Loan is to be made.  Subject to the
      satisfaction of the terms and conditions hereof, Agent shall make the
      requested Revolving Credit Loan available to the Company (to the extent
      of those portions of the Revolving Credit Loan actually received from
      the Banks) by crediting such amount to the Company's operating account
      with Agent as soon as reasonably practicable after two-thirty (2:30)p.m.
      New Jersey time on the day the requested Revolving Credit Loan is to be
      made.  If any Bank fails to make available to the Agent on a timely
      basis, as provided above, its applicable share of the requested
      Revolving Credit Loan, the Agent shall also be entitled to advance on
      behalf of such Bank, at the sole discretion of the Agent, the share of
      such Bank and then recover from such Bank (together with the amount so
      advanced) interest at the Federal Funds Rate on such unpaid share for
      each day such amount is not so remitted to the Agent.

      (ii)  All requests by the Company for Swing Line Loans shall be made by
      two o'clock (2:00) p.m. New Jersey time, on the day such Loan is to be
      made and, subject to the terms and conditions of this Agreement, the
      Swing Line Lender shall make the requested Swing Line Loan available to
      the Company by crediting such amount to the Company's operating account
      with Agent as soon as reasonably practicable thereafter.

 8.   Paragraph 2.5 of the Credit Agreement is modified to delete (beginning in
the 3rd line thereof) the words "respective offices of the Banks as stated in
the respective Notes, or at such other place as any Bank may from time to time
designate" and replace them with the words "offices of the Agent, for the
benefit of each Bank, as set forth in this Agreement, or at such other place as
the Agent may from time to time designate."

 9.   Paragraph 2.7 of the Credit Agreement is modified to (a) delete the
parenthetical in the 8th through 10th lines thereof, (b) delete from the 4th to
the last and 3rd to the last lines thereof the words "except as otherwise
required to achieve compliance with Subsection 6.2(w) hereof," and (c) delete
the words "each relevant Bank" from the 6th to the last line of such paragraph
and replace them with the words "the Agent".

 10.  Notwithstanding any term or provision to the contrary contained in
Paragraph 2.8 of the Credit Agreement, the following administrative procedures
shall hereafter be applicable with respect to the issuance of Letters of Credit
under the Credit Agreement:

      (a)  The Company shall provide to the Agent a copy of each application
submitted to an LOC Bank for the issuance of a Letter of Credit,
contemporaneously with the submission thereof to such LOC Bank.  The LOC Bank
shall provide to the Agent a copy of each Letter of Credit, and each amendment
to a Letter of Credit, upon issuance thereof.
      (b)  The original of each bill from an LOC Bank for administrative or
amendment fees with respect to Letters of Credit shall be forwarded to the Agent
which shall provide the Company not later than the fifth day of each month, with
a monthly bill covering administrative and amendment fees as well as commissions
for new and renewed Letters of Credit (based upon Letter of Credit documentation
and bills provided to the Agent).  For the purposes of such billing procedure,
the Agent shall use a commission period equal to the lesser of six (6) months or
the term of the Letter of Credit.  Payments by the Company of such billings
shall be made not later than the last day of the month in which it receives the
above described billing.

 11.  Paragraph 3.1(a) of the Credit Agreement is modified to (a) delete the
words "such Bank" from the 7th line thereof and replace them with the words
"under the terms hereof," (b) delete the words "or such other period as may be
permitted by any Bank" from the 12th line thereof, (c)delete the words "such
Bank" in the 13th line thereof and replace them with the words "the Agent," and
(d) add the following as a new last sentence to such paragraph: "At no time
shall the Banks be obligated to advance more than six (6) Revolving Credit Loans
in any calendar month, provided however that if such monthly maximum has been
reached, the Company may nevertheless request additional Revolving Credit Loans
from the Banks (subject to the conditions precedent specified in Subsection 5.2
hereof), only to the extent necessary to satisfy its obligation set forth in the
next to last sentence of Subsection 2.2 hereof."

 12.  Paragraph 3.1(d) of the Credit Agreement is modified to (a) delete the
words "such Bank" in the 8th line thereof and replace them with the words "the
Agent" and (b) delete the words "that Bank" at the end of such paragraph and
replace them with the words "the Agent."

 13.  Paragraph 3.5 of the Credit Agreement is modified to (a) delete the words
"each Bank" in the 1st line thereof and replace them with the words "the Agent,
for the benefit of each Bank," (b) following the percentage "one-half of one
percent (1/2%)" in the second line thereof, insert the phrase", and commencing
as of the date of the Fourth Amendment, three-eighths of one percent (3/8%),"
(c)delete the word "first" in the 9th line thereof and replace it with the word
"fifteenth," and (d) add the following as a new last sentence to such paragraph:
"The Agent shall provide the Company with a bill
for such fee within five (5) days of the end of each quarter."

 14.  Paragraph 3.6 of the Credit Agreement is modified to add the words "the
Agent for the benefit of" in the second line thereof immediately prior to the
words "the Banks."

 15.  Paragraph 6.2(d) of the Credit Agreement is modified to (a) insert a ";"
after the number "$5,000,000" at the end of the clause (xii) thereof and delete
the word "and" after such number, (b) delete the "." at the end of clause (xiii)
thereof and insert in its place a ";" and the word "and," and (c)add a new
clause (xiv) at the end of such paragraph to read as follows:
      "(xiv)    Investments in funds holding assets primarily consisting
      of those described in clause (iii) hereof."

 16.  The Credit Agreement is further modified to delete paragraph 6.2(w) of the
Credit Agreement  in its entirety.

 17.  Paragraph 8.3 of the Credit Agreement is deleted in its entirety and is
replaced by the following new paragraph 8.3:

      "8.3  Payments Prior to Acceleration.  Notwithstanding any provision to
      the contrary contained in this Agreement, the Notes or any related
      agreements, all payments of principal, premium (if any), interest and
      fees due and payable to any Bank under this Agreement, the Notes and all
      related agreements and documents shall be paid to the Agent which shall
      promptly remit all such payments to each Bank in accordance with the
      respective Loan Percentage of each Bank.  Any payment received by the
      Agent in good funds prior to twelve o'clock (12:00) noon on a Business
      Day shall be remitted to the Banks on the same Business Day and any
      payment thereafter received shall be remitted on the next Business Day.
      The Banks shall each be entitled to recover from the Agent interest at
      the Federal Funds Rate on any amount not timely remitted to them as
      provided above for each day such amount is not so remitted."

 18.  All Revolving Credit Loans as to which the Alternative Interest Rate is a
Libor Based Rate outstanding as of the date of this Fourth Amendment are listed
on Schedule A attached hereto and made part hereof (hereinafter collectively
called the "Existing Libor Loans").  No modification, termination or pro rata
adjustment shall be made, as a result of the provisions of this Fourth
Amendment, to the outstanding shares of the Existing Libor Loans held by each
Bank, provided, however, that upon the termination of the current Interest
Period with respect to each such Existing Libor Loan such Existing Libor Loan
shall not be renewed and any future borrowing to replace such Existing Libor
Loan shall be made in accordance with the provisions of Paragraph 2.4, as
amended hereby.

 19.  Contemporaneously with the execution hereof, the Company shall pay to the
Agent, for the benefit of each Bank, an amendment fee, in consideration of the
agreements and undertakings of the Banks set forth in this Fourth Amendment,
equal to three-hundreds of one percent (.03%) of the amount of the Facility
Commitment of each such Bank.

 20.  The Company hereby warrants and represents as follows:
      (a)  There is not currently outstanding any Event of Default or any
      event which with the giving of notice or the lapse of time or both would
      become an Event of Default;
      (b)  The Company has full power, authority and legal right to execute,
      deliver and perform under this Fourth Amendment.  The execution,
      delivery and performance by the Company of this Fourth Amendment have
      been duly authorized by all necessary corporate action and are in
      furtherance of its corporate purposes.
      (c)  The Guarantors each have full power, authority and legal right to
      execute, deliver and perform under this Fourth Amendment.  The
      execution, delivery and performance by each Guarantor of this Fourth
      Amendment have been duly authorized by all necessary corporate action
      and are in furtherance of its respective corporate purposes.
      (d)  No consent of any other Person (including shareholders of the
      Company or of any of the Guarantors) and no consent, license, approval
      or authorization of, or registration or declaration with, any
      governmental body, authority, bureau or agency is required in connection
      with the execution, delivery and performance by the Company and the
      Guarantors of this Fourth Amendment.
      (e)  The execution, delivery and performance of and compliance with this
      Fourth Amendment will not result in any violation of or be in conflict
      with or constitute a default under any term of the respective
      certificates of incorporation or bylaws of the Company or any Guarantor,
      or of any agreement, indenture, mortgage, lease, assignment, note or
      other instrument to which the Company or any Guarantor is a party or
      which purports to be binding upon any of them or upon any of their
      properties or assets, or any judgment, decree, order, law, statute,
      ordinance, rule or governmental regulation applicable to any of them
      (except to the extent that any such violations, in the aggregate, could
      not reasonably be expected to have a Material Adverse Effect), or result
      in the creation of an Encumbrance upon any of their properties or assets
      pursuant to any such term.
      (f)  The respective representations and warranties of the Company and
      each of the Guarantors contained in the Credit Agreement are true and
      complete and correct in all material respects (or as to any
      representation or warranty which is expressly qualified by reference to
      the term "Material Adverse Effect", then in all respects) as if made on
      and as of the date of this Fourth Amendment, except that the following
      changes have occurred with respect to the Schedules attached to and made
      part of the Credit Agreement:
           (i)  Schedule 1 has been further modified as a result of the
      inclusion of additional Guarantors and other Consolidated Subsidiaries
      since the date of the Third  Amendment, each Guarantor executing a
      separate Joinder Agreement and also executing this Fourth Amendment
      in such capacity, and Fourth Supplement to Schedule 1 reflecting the
      names and status of all such additional Consolidated Subsidiaries is
      attached hereto and made part hereof;
           (ii) Eighth Replacement Schedule 9 and Fifth Replacement Schedule
      11 attached to this Fourth Amendment are deemed incorporated into the
      Credit Agreement and Fourth Supplement to Schedule 1 attached to this
      Fourth Amendment is deemed incorporated into Schedule 1 (as previously
      amended) to the Credit Agreement.

 21.  This Fourth Amendment shall amend and be deemed incorporated into the
Credit Agreement as previously amended.  To the extent any provision of this
Fourth Amendment is expressly inconsistent with any term or provision of the
Credit Agreement, as previously amended, the terms and provisions of this Fourth
Amendment shall control.

 22.  This Fourth Amendment may be executed by one or more of the parties hereto
on any number of separate counterparts, and all of said counterparts taken
together shall be deemed and constitute one and the same instrument.

 IN WITNESS WHEREOF, the Company, Hovnanian, the Guarantors, the Banks and the
Agent have each executed this Fourth Amendment as of the date first above
written.

K. HOVNANIAN ENTERPRISES, INC.

By:
 J. Larry Sorsby
 Senior Vice President,
 Treasurer and Chief Financial Officer


DRYER ASSOCIATES, INC.
HOVNANIAN ENTERPRISES, INC.
0515 CO., INC.
CEDAR HILL WATER WORKS CORPORATION
CEDAR HILL SEWER WORKS CORPORATION
ARROW PROPERTIES, INC.
EASTERN NATIONAL TITLE INSURANCE AGENCY, INC.
EASTERN NATIONAL TITLE INSURANCE AGENCY I, INC.
EASTERN TITLE AGENCY, INC.
EXC, INC.
K. HOVNANIAN AT HOPEWELL III INC.
K. HOVNANIAN AT WAYNE IV, INC.
     (f/k/a K. HOVNANIAN AT  DOVER TOWNSHIP, INC.)
K. HOVNANIAN AT MONTVILLE, INC.
K. HOVNANIAN AT ATLANTIC CITY, INC.
HOVNANIAN AT TARPON LAKES I, INC.
HOVNANIAN AT TARPON LAKES II, INC.
HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.
HOVNANIAN GEORGIA, INC.
HOVNANIAN OF PALM BEACH, INC.
HOVNANIAN OF PALM BEACH, II, INC.
HOVNANIAN OF PALM BEACH, III, INC.
HOVNANIAN OF PALM BEACH, IV, INC.
HOVNANIAN OF PALM BEACH, V, INC.
HOVNANIAN OF PALM BEACH, VI, INC.
HOVNANIAN OF PALM BEACH, VII, INC.
HOVNANIAN OF PALM BEACH, VIII, INC.
HOVNANIAN OF PALM BEACH, IX, INC.
HOVNANIAN OF PALM BEACH, X, INC.
HOVNANIAN OF PALM BEACH, XI, INC.
MONTEGO BAY II ACQUISITION CORP., INC.
HOVNANIAN PENNSYLVANIA, INC.
HOVNANIAN PROPERTIES OF ATLANTIC COUNTY, INC.
HOVNANIAN TEXAS, INC.
JERSEY CITY DANFORTH CSP, INC.
K. HOVNANIAN AT ASHBURN VILLAGE
K. HOVNANIAN AT BARDEN OAKS, INC.
K. HOVNANIAN AT KINGS GRANT I, INC.
K. HOVNANIAN AT BERNARDS II, INC.
K. HOVNANIAN AT PERKIOMEN I, INC.
K. HOVNANIAN AT BRANCHBURG I, INC.
K. HOVNANIAN AT BRANCHBURG II, INC.
K. HOVNANIAN AT BRANCHBURG III, INC.
K. HOVNANIAN AT BRIDGEWATER V, INC.
K. HOVNANIAN AT BRIDGEWATER II, INC.
K. HOVNANIAN AT EAST BRUNSWICK, VIII, INC.
     (f/k/a K. HOVNANIAN AT BRIDGEWATER III, INC.)
K. HOVNANIAN AT BRIDGEWATER IV, INC.
K. HOVNANIAN AT BULL RUN, INC.
K. HOVNANIAN AT BURLINGTON, INC.
K. HOVNANIAN AT CARMEL, INC.
K. HOVNANIAN AT CAROLINA COUNTY CLUB I, INC.
K. HOVNANIAN AT CEDAR GROVE I, INC.
K. HOVNANIAN AT CEDAR GROVE II, INC.
K. HOVNANIAN AT CHAPEL TRAIL, INC.
K. HOVNANIAN AT DELRAY BEACH, INC.
K. HOVNANIAN AT DELRAY BEACH I, INC.
K. HOVNANIAN AT DELRAY BEACH II, INC.
K. HOVNANIAN AT OCEAN TOWNSHIP II, INC.
K. HOVNANIAN AT HORIZON HEIGHTS, INC.
     (f/k/a K. HOVNANIAN AT EAST BRUNSWICK II, INC.)
K. HOVNANIAN AT KLOCKNER FARMS, INC.
K. HOVNANIAN COMPANIES JERSEY SHORE, INC.
K. HOVNANIAN AT EAST BRUNSWICK, INC.
K. HOVNANIAN AT EMBASSY LAKES INC.
K. HOVNANIAN AT FAIRWAY VIEWS, INC.
K. HOVNANIAN AT FT. MYERS I, INC.
K. HOVNANIAN AT FT. MYERS II, INC.
K. HOVNANIAN AT FREEHOLD TOWNSHIP, INC.
     (f/k/a K. HOVNANIAN AT GALLOWAY, INC.)
K. HOVNANIAN AT LAKEWOOD, INC.
     (f/k/a K. HOVNANIAN AT  GALLOWAY III, INC.)
MINERVA GROUP, INC.
    (f/k/a K. HOVNANIAN AT  GALLOWAY IV, INC.)
PARTHENON GROUP, INC.
     (f/k/a K. HOVNANIAN AT GALLOWAY V, INC.)
K. HOVNANIAN AT MARLBORO TOWNSHIP, INC.
K. HOVNANIAN AT WAYNE V, INC.
     (f/k/a K. HOVNANIAN AT GALLOWAY VII, INC.)
K. HOVNANIAN AT GALLOWAY VIII, INC.
K. HOVNANIAN AT READINGTON, INC.
K. HOVNANIAN AT HALF MOON BAY, INC.
K. HOVNANIAN AT HOWELL TOWNSHIP II, INC.
     (f/k/a K. HOVNANIAN AT HAMILTON, INC.)
K. HOVNANIAN AT HAMILTON II, INC.
K. HOVNANIAN AT HOPEWELL I, INC.
K. HOVNANIAN AT PLAINSBORO III, INC.
     (f/k/a K. HOVNANIAN AT HOPEWELL II, INC. (a 1989 corp.))
K. HOVNANIAN AT JACKSONVILLE I, INC.
K. HOVNANIAN AT JACKSONVILLE II, INC.
K. HOVNANIAN AT JENSEN BEACH, INC.
K. HOVNANIAN AT JERSEY CITY I, INC.
K. HOVNANIAN AT JERSEY CITY II, INC.
K. HOVNANIAN AT JERSEY CITY III, INC.
K. HOVNANIAN AT LAKE CHARLESTOWN, INC.
K. HOVNANIAN COMPANIES OF NORTH JERSEY, INC.
K. HOVNANIAN AT LAWRENCE GROVE, INC.
K. HOVNANIAN AT LAWRENCE SQUARE, INC.
K. HOVNANIAN AT MAHWAH V, INC.
     (f/k/a K. HOVNANIAN AT LAWRENCE SQUARE II, INC.)
K. HOVNANIAN AT WALL TOWNSHIP II, INC.
K. HOVNANIAN AT SOUTH BRUNSWICK II, INC.
K. HOVNANIAN AT LOWER SAUCON, INC.
K. HOVNANIAN AT MAHOPAC, INC.
K. HOVNANIAN AT EAST WINDSOR I, INC.
     (f/k/a K. HOVNANIAN AT MAHWAH I, INC.)
K. HOVNANIAN AT MAHWAH II, INC.
K. HOVNANIAN AT MAHWAH III, INC.
K. HOVNANIAN AT MAHWAH IV, INC.
K. HOVNANIAN AT MAHWAH VI, INC.
K. HOVNANIAN AT MEDFORD I, INC.
K. HOVNANIAN AT MONTCLAIR, INC.
K. HOVNANIAN AT MARTIN DOWNS I, INC.
K. HOVNANIAN AT MARTIN DOWNS II, INC.
K. HOVNANIAN AT MERRIMACK, INC.
K. HOVNANIAN AT MERRIMACK II, INC.
K. HOVNANIAN AT MONTGOMERY I, INC.
K. HOVNANIAN AT MONTVILLE, INC.
K. HOVNANIAN AT WALL TOWNSHIP, INC.
K. HOVNANIAN AT WAYNE III, INC.
     (f/k/a K. HOVNANIAN AT MORRIS II, INC.)
K. HOVNANIAN AT NEWARK I, INC.
K. HOVNANIAN AT WALL TOWNSHIP III, INC.
K. HOVNANIAN AT NEWARK URBAN RENEWAL CORPORATION I, INC.
K. HOVNANIAN AT NEWARK URBAN RENEWAL CORPORATION II, INC.
K. HOVNANIAN AT NEWARK URBAN RENEWAL CORPORATION III, INC.
K. HOVNANIAN AT NEWARK URBAN RENEWAL  CORPORATION IV, INC.
K. HOVNANIAN AT NEWARK URBAN RENEWAL CORPORATION V, INC.
K. HOVNANIAN AT NORTH BRUNSWICK II, INC.
K. HOVNANIAN AT NORTH BRUNSWICK III, INC.
K. HOVNANIAN AT NORTHERN WESTCHESTER, INC.
K. HOVNANIAN AT OCEAN TOWNSHIP, INC.
K. HOVNANIAN AT ORLANDO I, INC.
K. HOVNANIAN AT ORLANDO II, INC.
K. HOVNANIAN AT ORLANDO III, INC.
K. HOVNANIAN AT ORLANDO IV, INC.
K. HOVNANIAN AT PALM BEACH XIII, INC.
K. HOVNANIAN AT PASCO I, INC.
K. HOVNANIAN AT PASCO II, INC.
K. HOVNANIAN AT PEEKSKILL, INC.
K. HOVNANIAN AT MAHWAH VII, INC.
     (f/k/a K. HOVNANIAN AT PISCATAWAY, INC.)
K. HOVNANIAN AT MONTCLAIR, N.J., INC.
K. HOVNANIAN AT THE RESERVE AT MEDFORD, INC.
K. HOVNANIAN AT PLAINSBORO I, INC.
K. HOVNANIAN AT PORT ST. LUCIE I, INC.
K. HOVNANIAN AT RIVER OAKS, INC.
K. HOVNANIAN AT RESERVOIR RIDGE, INC.
     (f/k/a K. HOVNANIAN AT SOMERSET, INC.)
K. HOVNANIAN AT SOUTH BRUNSWICK, III, INC.
     (f/k/a K. HOVNANIAN AT SOMERSET II, INC.)
K. HOVNANIAN AT PRINCETON, INC.
     (f/k/a K. HOVNANIAN AT SOMERSET III, INC.)
K. HOVNANIAN AT HOWELL TOWNSHIP, INC.
     (f/k/a K. HOVNANIAN AT SOMERSET V, INC.)
K. HOVNANIAN AT SOMERSET VI, INC.
K. HOVNANIAN AT SOUTH BRUNSWICK IV, INC.
     (f/k/a/ K. HOVNANIAN AT SOMERSET VII, INC.)
K. HOVNANIAN AT SOMERSET VIII, INC.
K. HOVNANIAN AT SOUTH BRUNSWICK, INC.
K. HOVNANIAN AT SPRING RIDGE, INC.
K. HOVNANIAN AT SULLY STATION, INC.
K. HOVNANIAN AT TARPON LAKES III, INC.
K. HOVNANIAN AT TAUTON, INC.
K. HOVNANIAN AT BRANCHBURG IV, INC.
     (f/k/a K. HOVNANIAN AT TINTON FALLS, INC.)
K. HOVNANIAN AT WEST ORANGE, INC.
     (f/k/a K. HOVNANIAN AT TINTON FALLS II, INC.)
K. HOVNANIAN AT UPPER MERION, INC.
K. HOVNANIAN AT VALLEYBROOK, INC.
K. HOVNANAIAN AT MARLBORO V, INC.
     (f/k/a K. HOVNANIAN AT WALL TOWNSHIP V, INC.)
K. HOVNANIAN AT WASHINGTONVILLE, INC.
K. HOVNANIAN AT WAYNE, INC.
K. HOVNANIAN AT WESTCHESTER, INC.
K. HOVNANIAN AT WOODBRIDGE ESTATES, INC.
K. HOVNANIAN AVIATION, INC.
K. HOVNANIAN COMPANIES OF FLORIDA, INC.
K. HOVNANIAN COMPANIES OF MASSACHUSETTS, INC.
K. HOVNANIAN COMPANIES OF METRO WASHINGTON, INC.
K. HOVNANIAN COMPANIES NORTHEAST, INC.
K. HOVNANIAN COMPANIES OF NEW YORK, INC.
K. HOVNANIAN COMPANIES OF NORTH CAROLINA, INC.
K. HOVNANIAN COMPANIES OF PENNSYLVANIA, INC. (f/k/a K. HOVNANIAN
     COMPANIES OF THE DELAWARE VALLEY, INC.)
K. HOVNANIAN DEVELOPMENTS OF METRO WASHINGTON, INC.
K. HOVNANIAN DEVELOPMENTS OF NEW JERSEY, INC.
K. HOVNANIAN DEVELOPMENTS OF NEW YORK, INC.
K. HOVNANIAN EQUITIES, INC.
K. HOVNANIAN AT MONTVILLE II, INC.
K. HOV INTERNATIONAL, INC.
KINGS GRANT EVESHAM CORP.
K. HOVNANIAN INVESTMENT PROPERTIES OF NEW JERSEY, INC.
K. HOVNANIAN MARINE, INC.
K. HOVNANIAN MORTGAGE USA, INC.
K. HOVNANIAN OF FLORIDA, INC.
K. HOVNANIAN AT CAROLINA COUNTRY CLUB, INC.
K. HOVNANIAN OF PALM BEACH XIII, INC.
K. HOVNANIAN AT HANOVER, INC.
MOLLY PITCHER CONSTRUCTION CO., INC.
     (f/k/a MOLLY PITCHER RENOVATIONS, INC.)
K. HOVNANIAN PROPERTIES OF EAST BRUNSWICK II, INC.
K. HOVNANIAN PROPERTIES OF RED BANK, INC.
     (f/k/a K. HOVNANIAN PROPERTIES OF FRANKLIN II, INC.)
K. HOVNANIAN PROPERTIES OF FRANKLIN, INC.
K. HOVNANIAN PROPERTIES OF NORTH BRUNSWICK I, INC. (f/k/a K.
     HOVNANIAN PROPERTIES OF GALLOWAY II, INC.)
K. HOVNANIAN PROPERTIES OF ORLANDO, INC.
K. HOVNANIAN REAL ESTATE INVESTMENT, INC.
K. HOVNANIAN REAL ESTATE OF FLORIDA, INC.
K. HOVNANIAN PLAINSBORO, II, INC.
LANDARAMA, INC.
K. HOVNANIAN AT BEDMINSTER, INC.
NEW ENGLAND COMMUNITY MANAGEMENT CO., INC.
NEW K. HOVNANIAN COMPANIES OF FLORIDA, INC.
K. HOVNANIAN TREASURE COAST, INC. (f/k/a NEW K. HOVNANIAN
     DEVELOPMENTS OF FLORIDA, INC.)
PIKE UTILITIES, INC.
PINE BROOK CO., INC.
K. HOVNANIAN AT STONY POINT, INC.
     (f/k/a R.C.K. COMMUNITY MANAGEMENT CO., INC.)
RECREATIONAL DEVELOPMENT CORP., INC.
K. HOVNANIAN AT WALL TOWNSHIP IV, INC.
MONTEGO BAY I ACQUISITION CORP., INC.
SOUTH FLORIDA RESIDENTIAL TITLE AGENCY, INC.
K. HOVNANIAN AT NORTH BRUNSWICK IV,  INC.
     (f/k/a THE HERITAGE CLUB AT HOLMDEL, INC.)
THE NEW FORTIS CORPORATION
TROPICAL SERVICE BUILDERS, INC.
WESTERN FINANCIAL SERVICES, INC.
K. HOVNANIAN COMPANIES OF CENTRAL JERSEY, INC.
K. HOVNANIAN AT HOLMDEL, INC.
K. HOVNANIAN PROPERTIES OF ATLANTIC COUNTY, INC.
K. HOVNANIAN AT HOLLY CREST, INC.
K. HOVNANIAN AT LAKE CHARLESTON II, INC.
K. HOVNANIAN AT LAKE CHARLESTON III, INC.
K. HOVNANIAN COMPANIES OF NORTH CENTRAL JERSEY, INC.
KHIPE, INC.
K. HOVNANIAN INVESTMENT PROPERTIES, INC.
K. HOVNANIAN AT BELMONT, INC.
K. HOVNANIAN AT CAROLINA COUNTRY CLUB II, INC.
K. HOVNANIAN AT PARK RIDGE, INC.
K. HOVNANIAN AT VALLEYBROOK II, INC.
K. HOVNANIAN AT FAIR LAKES, INC.
     (f/k/a K. HOVNANIAN AT WATER'S EDGE, INC.)
K. HOVNANIAN AT WINSTON TRAILS II, INC.
K. HOVNANIAN AT FAIR LAKES GLEN, INC.
K. HOVNANIAN AT PEMBROKE SHORES, INC.
     (f/k/a K. HOVNANIAN AT PEMBROKE ISLES, INC.)
K. HOVNANIAN AT COCONUT CREEK, INC.
GOVERNOR'S ABSTRACT CO., INC.
K. HOVNANIAN AT POLO TRACE, INC.
K. HOVNANIAN COMPANIES OF SOUTH JERSEY, INC.
K. HOVNANIAN AT PERKIOMEN II, INC.
K. HOVNANIAN AT WAYNE II, INC.
K. HOVNANIAN AT UPPER MAKEFIELD I, INC.
K. HOVNANIAN COMPANIES OF CALIFORNIA, INC.
K. HOVNANIAN AT LA TERRAZA, INC.
     (f/k/a K. HOVNANIAN COMPANIES OF SOUTHERN CALIFORNIA I, INC.)
K. HOVNANIAN DEVELOPMENTS OF CALIFORNIA, INC.
FOUNDERS TITLE AGENCY, INC.
K. HOVNANIAN AT CAROLINA COUNTRY CLUB III, INC.
KHC ACQUISITION, INC.
STONEBROOK HOMES, INC.
K. HOVNANIAN AT STUART ROAD, INC.
K. HOVNANIAN AT BALLANTRAE, INC.
K. HOVNANIAN AT HIGHLAND VINEYARDS, INC.
K. HOVNANIAN AT EAST WINDSOR II, INC. (f/k/a K. HOVNANIAN PROPERTIES
     OF GALLOWAY, INC.)
BALLANTRAE HOME SALES, INC.
K. HOVNANIAN AT HACKETTSTOWN, INC.
K. HOVNANIAN AT WILDROSE, INC. (f/k/a K. HOVNANIAN COMPANIES OF
     SOUTHERN CALIFORNIA II, INC.)
K. HOVNANIAN AT GREENBROOK, INC.
     (f/k/a K. HOVNANIAN AT FAIRWAY ESTATES, INC.,
     f/k/a K. HOVNANIAN AT SPRING MOUNTAIN, INC.)
K. HOVNANIAN AT CARMEL DEL MAR, INC.
K. HOVNANIAN AT PRINCETON, INC.
K. HOVNANIAN AT HUNTER ESTATES, INC.
K. HOVNANIAN AT VAIL RANCH, INC.
K. HOVNANIAN AT RARITAN I, INC.
K. HOVNANIAN AT CALABRIA, INC.
K. HOVNANIAN AT BEDMINSTER II, INC.
K. HOVNANIAN AT BERLIN, INC.
K. HOVNANIAN FLORIDA REGION, INC.
K. HOVNANIAN AT MARLBORO TOWNSHIP II, INC.
K. HOVNANIAN SOUTHEAST FLORIDA, INC.
K. HOVNANIAN DEVELOPMENTS OF MARYLAND, INC.
K. HOVNANIAN COMPANIES OF MARYLAND, INC.
K. HOVNANIAN AT SENECA CROSSING, INC.
K. HOVNANIAN AT EXETER HILLS, INC.
K. HOVNANIAN AT EAST BRUNSWICK VI, INC.
K. HOVNANIAN AT INVERRARY I, INC.
K. HOVNANIAN AT MAHWAH IX, INC.
K. HOVNANIAN AT HOPEWELL IV, INC.
K. HOVNANIAN AT NORTHLAKE, INC.
K. HOVNANIAN AT LOCUST GROVE I, INC. (f/k/a K. HOVNANIAN AT
     HOPEWELL II, INC. (a 1995 corp.))
K. HOVNANIAN AT BERNARDS III, INC.
K. HOVNANIAN AT BRIDGEWATER VI, INC.
K. HOVNANIAN AT CASTILE, INC.
K. HOVNANIAN AT TIERRASANTA, INC.
K. HOVNANIAN AT WAYNE VI, INC.
K. HOVNANIAN AT PRESTON, INC.
K. HOVNANIAN AT LAKES OF BOCA RATON, INC.
K. HOVNANIAN AT WINSTON TRAILS, INC.
K. HOVNANIAN AT EAST BRUNSWICK V, INC.
K. HOVNANIAN AT MAHWAH VIII, INC.
     (f/k/a K. HOVNANIAN AT GALLOWAY II, INC.)
BALLANTRAE DEVELOPMENT CORP.
K. HOVNANIAN AT MARLBORO TOWNSHIP III, INC.
     (f/k/a K. HOVNANIAN PROPERTIES OF NORTH BRUNSWICK III, INC.)
K. HOVNANIAN AT RANCHO CRISTIANITOS, INC.
K. HOVNANIAN AT TROVATA, INC.
K. HOVNANIAN AT THE BLUFF, INC. (f/k/a K. HOVNANIAN PROPERTIES OF
     NORTH BRUNSWICK IV. INC.)
K. HOVNANIAN AT SCOTCH PLAINS, INC.
     (f/k/a  K. HOVNANIAN AT WATCHUNG RESERVE, INC.)
K. HOVNANIAN AT EAST BRUNSWICK VII, INC.
     (f/k/a K. HOVNANIAN AT WINDSONG EAST BRUNSWICK, INC.)
K. HOVNANIAN AT SOUTH BRUNSWICK V, INC.
K. HOVNANIAN AT TANNERY HILL, INC.
K. HOVNANIAN AT WALL TOWNSHIP VI, INC.
K. HOVNANIAN AT CRYSTAL SPRINGS, INC.
K. HOVNANIAN AT THE CEDARS, INC.
K. HOVNANIAN CONSTRUCTION MANAGEMENT,  INC.
K. HOVNANIAN ACQUISITIONS, INC.
K. HOVNANIAN AT BURLINGTON II, INC.
K. HOVNANIAN AT BURLINGTON III, INC.
K. HOVNANIAN AT MANALAPAN, INC.
K. HOVNANIAN AT BALLANTREA ESTATES, INC.
K. HOVNANIAN AT SMITHVILLE, INC.
K. HOVNANIAN AT JEFFERSON, INC.
     (f/k/a K. HOVNANIAN AT HERSHEY'S MILL, INC. (a NJ corp.))
K. HOVNANIAN AT UPPER FREEHOLD TOWNSHIP I, INC.
K. HOVNANIAN AT HERSHEY'S MILL, INC. (a PA corp.)
BALLANTRAE MARINA, INC.
K. HOVNANIAN AT BERNARDS IV, INC.
K. HOVNANIAN AT DOMINION RIDGE, INC.
K. HOVNANIAN AT WALL TOWNSHIP VII, INC.
K. HOVNANIAN AT PORT IMPERIAL NORTH, INC.
K. HOVNANIAN AT UNION TOWNSHIP I, INC.
K. HOVNANIAN AT MANALAPAN II, INC.
K. HOVNANIAN AT CAMERON CHASE, INC.
K. HOVNANIAN AT HOPEWELL V, INC.
K. HOVNANIAN AT HOPEWELL VI, INC.
K. HOVNANIAN AT THORNBURY, INC.
K. HOVNANIAN AT WAYNE VII, INC.
K. HOVNANIAN AT SCOTCH PLAINS II, INC.
K. HOVNANIAN AT MARLBORO TOWNSHIP IV, INC.
K.HOVNANIAN AT PORT IMPERIAL URBAN RENEWAL, INC.
K. HOVNANIAN AT EAST WHITELAND I, INC.
K. HOVNANIAN AT STONEGATE, INC.
K. HOVNANIAN AT SYCAMORE, INC.
K. HOVNANIAN AT SAN SEVAINE, INC.
K. HOVNANIAN AT CRESTLINE, INC.
K. HOVNANIAN COMPANIES OF SOUTHERN CALIFORNIA, INC.
K. HOVNANIAN AT SMITHVILLE II, INC.
K. HOVNANIAN AT STONE CANYON, INC.

By:
  J. Larry Sorsby
  Senior Vice President, Treasurer and Chief Financial Officer of
  each of the foregoing corporations

                             PNC BANK, NATIONAL ASSOCIATION, AS AGENT

                             By:
                             Name:  Douglas G. Paul
                             Title: Vice President


                             PNC BANK, NATIONAL ASSOCIATION

                             By:
                             Name:  Douglas G. Paul
                             Title: Vice President


                             THE CHASE MANHATTAN BANK

                             By:
                             Name:
                             Title:

                             THE FIRST NATIONAL BANK OF CHICAGO

                             By:
                             Name:
                             Title:

                             CORESTATES BANK, N.A.

                             By:
                             Name:
                             Title:

                             NATIONSBANK, NATIONAL ASSOCIATION

                             By:
                             Name:
                             Title:

                             FIRST NATIONAL BANK OF BOSTON

                             By:
                             Name:
                             Title:


                             BANK OF AMERICA ILLINOIS

                             By:
                             Name:
                             Title:


                             COMERICA BANK

                             By:
                             Name:
                             Title:


                             CREDIT LYONNAIS NEW YORK BRANCH

                             By:
                             Name:
                             Title: