Home builder D.R. Horton earnings plunge 85 pct
D.R. Horton Inc. (DHI.N), the largest U.S. home builder, said on Thursday quarterly earnings fell 85 percent...The mortgage mess led Horton to increase its loan loss reserves by about $14 million during the quarter, as it saw some increases in early defaulted mortgages. During the quarter, Horton originated about 68 percent of loans to prospective buyers. Subprime loans -- those given to borrowers with weak credit histories, and a current concern in the mortgage industry -- accounted for less than 2 percent of those. Loans that required little or no documentation, which have also come under scrutiny recently, accounted for about 40 percent, down from 50 percent... Unlike other home builders, Horton said it has no plans to weed out potential buyers who may not be able to qualify for a loan in order to bring down the cancellation rate. "As I've said to all our salespeople, if a buyer is warm and has a pulse, we want to put them on paper," he said.

Home builder D.R. Horton earnings plunge 85 pct

By Ilaina Jonas

NEW YORK (Reuters) - D.R. Horton Inc. (DHI.N), the largest U.S. home builder, said on Thursday quarterly earnings fell 85 percent, in part due to charges related to the lower value of land.

The U.S. housing market has been in a severe downturn for the past year, with a mounting glut of homes on the market, increasingly resistant prospective buyers and tighter lending standards. Builders have responded by slashing prices, throwing in freebies and cutting back on "spec homes" -- those built speculatively without a buyer.

"We continue to operate in a very difficult home-building environment," Horton Chief Executive Donald Tomnitz told analysts during a conference call.

For the fiscal second quarter that ended March 31, D.R. Horton earned $51.7 million, or 16 cents per share, down from $352.8 million, or $1.11 per share, a year earlier.

The results included charges totaling $81.2 million, or 16 cents per share for land options forfeited and for the lower value of inventory of land and houses it owns.

"We believe that there will be continued softness in '08, and I would expect that we'll continue to adjust our inventories downward in the first two quarters of '08," Tomnitz said.

About 80 percent of the impairment charges were related to California projects, particularly in Sacramento. Horton, based in Fort Worth Texas, said it has begun to aggressively cut prices in California.

Excluding the charges, the earnings were 32 cents per share, short of the 36 cents that was the average of analysts' forecasts, according to Reuters Estimates.

A 7 percent reduction in the average selling price of a home and added incentives hurt gross margins before the charges. The margins fell to 17.7 percent, down 7.8 percentage points from the previous year and 0.9 percentage points from the prior quarter.

During the quarter, Horton closed on the sale of 9,792 homes, down 22 percent from the prior year. Home-building revenue sank 26 percent, to $2.62 billion.

The lighter-than-expected home-building revenue accounted for most of the earnings plunge but the results overall were "no major surprise," Bank of America analyst Daniel Oppenheim said in a note.

The downturn in the U.S. housing market has hit home builders and related sectors hard. Tightened loan policies due to the subprime mortgage crisis have only exacerbated the industry's pain, depleting the pool of potential buyers.

"We face head winds, we believe, and strong head winds, we believe, during the course of the next six to 12 months from , illiquidity in the mortgage industry," Tomnitz said.

The mortgage mess led Horton to increase its loan loss reserves by about $14 million during the quarter, as it saw some increases in early defaulted mortgages.

During the quarter, Horton originated about 68 percent of loans to prospective buyers.

Subprime loans -- those given to borrowers with weak credit histories, and a current concern in the mortgage industry -- accounted for less than 2 percent of those.

Loans that required little or no documentation, which have also come under scrutiny recently, accounted for about 40 percent, down from 50 percent.

Horton started only about one-half as many homes as it did the prior year. Total spec homes dipped to 46 percent of total homes under construction, down from 48 percent the prior quarter. The company plans to reduce that to the mid 30's.

Completed spec homes fell by 14 percent to 4,300.

Unlike other home builders, Horton said it has no plans to weed out potential buyers who may not be able to qualify for a loan in order to bring down the cancellation rate.

"As I've said to all our salespeople, if a buyer is warm and has a pulse, we want to put them on paper," he said.

D.R. Horton shares were down 8 cents at $22.96 on Thursday afternoon on the New York Stock Exchange. Year-to-date, Horton shares are off 13 percent, while the Dow Jones U.S. Home Construction Index (.DJUSHB), is down about 14 percent.
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